“Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.” Peter Lynch, famed mutual fund manager
What a few months for investors. After crashing more than 10% only two days after Liberation Day on April 2, fear and panic were in the air. As bad as things felt then, stocks have come soaring back. Like a beach ball under the water, once you let go and it gets some momentum, it is amazing how quickly it moves higher.
Here’s a nice chart that shows the rolling one-month return for the S&P 500. At the lows on April 8th the S&P 500 was down more than 12%, for one of the worst monthly declines ever. The next month? Stocks soared more than 13%. As we said then and we say now, the best and worst days nearly always happen near each other, so if you sell after some bad days, you’ll miss the inevitable strong days.
Monday Was A Really Good Day
Stocks soared yesterday, as US and China tariffs were reduced way more than just about anyone expected. President Trump himself on Friday said tariffs could drop to 80%, so the move all the way back down to 10% was taken extremely kindly by investors.
The Dow gapped up more than 1,000 points for only the third time in history. What was more impressive though was that stocks were quite overbought near-term heading into Monday, yet closed near the highs of the day. Honestly, I would have expected some afternoon weakness after the huge gap up, but that wasn’t what we saw.
A few weeks ago, I shared a few reasons to think the lows for the year were in, which wasn’t very popular at the time, but now it is even more likely. Incredibly, the S&P 500 is officially flat on the year and now less than 5% away from new all-time highs.
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Some Good News for the Bulls
Last Thursday officially marked one month from the April 8 S&P 500 lows, and as bad as things felt back then, they’ve felt pretty good since. The S&P 500 soared more than 13% over the ensuing month. This was the best gain over a one-month period since we came off the pandemic lows in March 2020, and huge monthly gains like this are perfectly consistent with potentially higher prices going forward.
Here’s the good news. We found 13 other times stocks gained at least 13% over a one-month period and the future returns were very strong. In fact, only twice were prices lower a year later and that was during the early 2000s tech bubble bear market. The past four times this happened saw at least double-digit returns going out the next year. The bottom line is a huge monthly surge like we just saw is yet another clue the lows for 2025 are likely in and better times could be coming for investors.
Some Good News Part 2
Additionally, yesterday saw another potentially very good signal, as more than 55% of the components in the S&P 500 reached a 20-day high. Affectionately known as a deGraff Thrust Indicator, discovered by Jeff deGraff over at RenMac, this rare thrust is a sign of extreme strength with many stocks making a new monthly high at the same time. This is yet another in the growing list of potentially bullish developments suggesting the worst is over and better times in 2025 are likely.
Looking at the past 30 signals, strong performance going out a year is perfectly normal. Incredibly, the S&P 500 has been higher a year later 29 out of 30 times, yet another clue the bulls might have some fun going forward.
Thanks for reading and for more of our thoughts on the latest on the economy and this big rally, be sure to watch our latest Facts vs Feelings podcast below.
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For more content by Ryan Detrick, Chief Market Strategist click here.
