“You don’t need a weatherman to know which way the wind blows.” Bob Dylan, Subterranean Homesick Blues
What a week last week was, as the S&P 500 gained more than 3% on Monday after a 90-day pause in tariffs with China was announced. Incredibly, stocks gained the next four days as well. March 2003 was the last time we saw a Monday that strong followed by the next four days green as well. That time marked the end of the post-tech bubble bear market and the start of a new bull market. 🤔
Incredibly, the S&P 500 is now up on the year, a long way from the down 15% year-to-date return back in early April. Want another amazing stat? According to our friends at Bespoke, this is the first year since 1982 to be down at least 15% for the year and then turn positive within six weeks. As violent as the sell-off was in March and April, the recovery has been nearly as explosive. The chart below shows that only three times in history has the S&P 500 been down 15% YTD and come all the way back to positive by the end of the year. Well, this year very well could be the fourth and those other three all finished up double digits, something that should have investors smiling should it happen again this year.
Early Weakness in 2025 Wasn’t a Surprise
No we didn’t see a 10% market crash after Liberation Day on April 2 coming, but we thought some type of early year weakness was very possible. We’ve noted in these very blogs many times that the year after a 20% gain, as well as early in a post-election year, and the first quarter of the year the past 20 years have all tended to be weak historically for stocks.
Here’s a good chart that shows early weakness in a post-election year is perfectly normal, but so is a major low in early April and then better times coming. Could history repeat itself in 2025? We think it may.
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Another Buying Thrust
The past few weeks we’ve been noting many rare and potentially bullish signals that suggested the worst was indeed over. Like the Bob Dylan quote above, there have been many clues that stocks could be on the verge of a significant move higher and fortunately that has happened.
Well, last week we got another clue this rally has legs left. 58% of all the components in the S&P 500 made a 20-day high last Monday, a very rare event and another clue the strength we’ve been seeing isn’t just another bear market rally.
Incredibly, a year after this signal stocks have been higher 20 out of 20 times, with extremely strong returns going out a year as well. Don’t take any study like this by itself too seriously, but stacked on top of the many other data points we’ve been sharing the past few weeks, 2025 might just end up being a solid year for the bulls.
Breadth Leads Price
Last week also saw the NYSE advance/decline line move back to a new all-time high. This is a cumulative tally of advancers and decliners and history tells us that when this hits new highs, indexes are likely to follow. Or as I learned it more than two decades ago, breadth leads price.
This was the first new high after at least five months without a new high for the NYSE A/D line. Going back to 2000, there were five other times it went at least five months without a new high and when it finally got there, the S&P 500 was higher at least double digits a year later every single time. File this one under the reasons to remain bullish in 2025.
What a Run
April 8 feels like a lifetime ago, but that was the closing low of the near bear market. It has been off to the races ever since, with the S&P 500 going from down 19% year to date to less than 3% away currently.
In my opinion, the 27 trading days beginning on April 9 will go down in history as one of the most explosive short-term rallies we’ve ever seen. Many a perma-bear economist has been telling us that rallies like this only happen in recessions or bear markets, but that simply isn’t true. In fact, it is quite wrong and these blasts of extreme strength tend to suggest a new bullish trend is here.
We found five other times stocks were up at least 19% or more in only 27 trading days and the results were staggering. The end of bear markets in 1974, 1982, the Great Financial Crisis, and 2020 were the other times we’ve seen a rally like we’ve just seen. Those times weren’t the worst times to be looking for higher prices and better opportunity for investors and I don’t think this time will be much different.
In conclusion, thank you for reading, as we know there are plenty of places you could go to get investment advice.
Could the lows be in? If you’ve been reading what I’ve been saying for about a month now then you know the answer has been yes, but be sure to watch our latest Take Five video as we break it all down!
For more content by Ryan Detrick, Chief Market Strategist click here
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