Based on the data shown, historically when the percentage of S&P 500 Index member companies trading above their respective 200-day average is below 25%, the average subsequent 12-month total return has been 26.5%; when the level is 15% or lower, the subsequent 12-month return has been 32.5%. As of June 22, 2022, the S&P 500 Index level is 17%.
Why are these charts important?
Today, very few investors would be shocked to learn that inflation is high, interest rates are rising, corporate earnings are under pressure and the potential for a recession in the next 18-months is high. As we stated earlier, we don’t know what S&P 500 Index level represents the market “bottom” and when it will occur, but we do know that all prior market lows were followed by a bull market and new market highs. Our recommendation therefore is to remain invested, manage risk and keep an eye on sentiment factors as when those factors improve the markets tend to improve rapidly.