Unlock stock picks and a broker-level newsfeed that powers Wall Street.
We Just Witnessed the S&P 500 Do Something for Only the 14th Time Since 1988 -- and This Event Has an 85% Success Rate of Forecasting Future Stock Returns
The Dow Jones Industrial Average, S&P 500, and Nasdaq Composite have all recently logged some of their largest single-session point and percentage gains and declines.
A myriad of factors -- including President Donald Trump's tariff policy -- is responsible for whipsawing Wall Street's major stock indexes.
A historic short-term gain for the S&P 500 -- its 14th in 37 years -- points to a clear directional move for the broad-based index.
Though there are a number of ways to grow your wealth, including buying real estate, purchasing commodities, or tucking your money into a Treasury bond, none of these other asset classes has come remotely close to matching the annualized return of stocks over the last century.
While stocks are known for delivering outsized average annual returns over extended periods, their short-term performance is anything but predictable, as the last five weeks have demonstrated.
Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue »
Since Wall Street's benchmark index, the S&P 500(SNPINDEX: ^GSPC), notched its all-time closing high on Feb. 19, we've witnessed it and the Dow Jones Industrial Average(DJINDICES: ^DJI) careen into correction territory, with the growth-fueled Nasdaq Composite(NASDAQINDEX: ^IXIC) entering its first bear market since 2022.
Image source: Getty Images.
But what really stood out in April was the velocity of the single-session moves observed in the Dow Jones, S&P 500, and Nasdaq Composite. The S&P 500 registered its fifth-biggest two-day percentage decline since 1950 during the first week of April, as well as its largest single-day point increase on record just a few days later.
These wild vacillations have led to a rare and historic event for the S&P 500, which, throughout history, has had a knack for predicting the direction stocks will move next.
Numerous factors are whipsawing Wall Street
Before analyzing one of the rarer Wall Street events that has a rock-solid track record of forecasting future stock returns, it's important to recognize that the variables leading to this historic volatility aren't going to disappear anytime soon.
The primary catalyst responsible for whipsawing the Dow, S&P 500, and Nasdaq Composite is President Donald Trump's tariff policy. Following the closing bell on April 2, Trump introduced a 10% worldwide tariff, as well as higher "reciprocal tariffs" on countries deemed to have ongoing trade deficits with the U.S. It's this announcement that caused the S&P 500 to endure its steep two-day decline; and it's President Trump's 90-day pause on reciprocal tariffs for all countries except China on April 9 that lit the fuse to the biggest one-day point gains in history for all three indexes.
Attempting to negotiate trade deals with dozens of countries is going to be a give-and-take process that might lead to reciprocal tariffs, an increase in the prevailing rate of inflation in the U.S., and potentially weaker domestic growth.
The stock market also entered 2025 at quite the premium valuation. The S&P 500's Shiller price-to-earnings (P/E) Ratio, which is also known as the cyclically adjusted P/E Ratio (CAPE Ratio), hit a multiple of nearly 39 in December, which is its third-highest reading during a continuous bull market when back-tested 154 years.
Although the Shiller P/E Ratio isn't in any way a timing tool, readings above 30 have been a precursor to eventual losses of 20% (or greater) in the Dow Jones Industrial Average, S&P 500, and/or Nasdaq Composite.
Investors have concerns about the health of the U.S. economy, as well. The initial read on first-quarter gross domestic product showed the economy shrank by 0.3% -- its first contraction in three years. Even though the economy and stocks aren't tied at the hip, it's not uncommon for economic weakness to translate into corporate earnings headwinds.
Lastly, a rapid rise in Treasury bond yields has given investors fits. Though income seekers are smiling, a rapid uptick in bond yields runs the risk of increasing borrowing rates for consumers and businesses. This is akin to depressing the brakes on an already cooling economy.
Image source: Getty Images.
A historically big bounce for the S&P 500 (generally) brings good tidings for investors
Despite these multiple and persistent catalysts whipsawing Wall Street's major stock indexes, the benchmark S&P 500 has bounced back from its April 8 closing low in historic fashion.
Though there have been some sizable single-session point declines since April 8 for all three major indexes, the S&P 500 has decisively moved higher. On a total return basis, which includes dividends, the S&P 500 gained 12.5% over 17 trading sessions, through May 1.
Yes, 17 trading sessions is an arbitrary number, as is the fact that the S&P 500 returned 12.5%. But according to Jeff Weniger, the head of equity strategy at WisdomTree, there's a method to the madness of drawing lines in the sand at these particular points.
As you'll note in the post below on social media platform X from Weniger, the S&P 500's 17-day romp higher marked only the 14th time since the beginning of 1988 that the benchmark index rallied at least 12.5%.
Using data from Refinitiv, Weniger calculated the S&P 500's total returns at 10 various time frames following surges of at least 12.5%. Of particular interest is the last column (250 sessions later), which serves as the rough one-year mark following each rare event.
On an aggregate basis, the S&P 500 was higher one year later 85% of the time (11 out of 13 prior instances), with two periods during the dot-com bubble being the exceptions. As Weniger notes in his post, though there's temptation to take profits after an outsized surge in the S&P 500, historical data strongly incents patience and perspective.
What's more, the S&P 500 was higher by an average of 19.6% in the year following these 13 previous surges in the index. In comparison, the average annualized total return for the S&P 500 since 1988 is a more modest 11.9%. Statistically speaking, surges of at least 12.5% in a 17-trading-session stretch for the benchmark index have foreshadowed outsized future stock returns.
The one caveat to the above data set is that no predictive tool or correlative event can guarantee what will happen next for stocks. If there were a perfect forecasting tool, you can rest assured we'd all be using it by now.
Nevertheless, Weniger highlighting a rare Wall Street event speaks to the importance of investors keeping their focus on the horizon and ignoring the incessant white noise that often clouds very near-term forecasts. Though we may never be able to predict what the S&P 500 will do tomorrow or a week from now with any real accuracy, there hasn't been a rolling 20-year period in more than a century where the S&P 500 didn't end notably higher.
Should you invest $1,000 in S&P 500 Index right now?
Before you buy stock in S&P 500 Index, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and S&P 500 Index wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider whenNetflixmade this list on December 17, 2004... if you invested $1,000 at the time of our recommendation,you’d have $623,685!* Or when Nvidiamade this list on April 15, 2005... if you invested $1,000 at the time of our recommendation,you’d have $701,781!*
Now, it’s worth notingStock Advisor’s total average return is906% — a market-crushing outperformance compared to164%for the S&P 500. Don’t miss out on the latest top 10 list, available when you joinStock Advisor.
