As a Result of This S&P 500 News, Bulls Are Revved Up. Why They’re Making More of It Than It Is?

Last week, the S&P 500 briefly climbed above its 200-day moving average, a development that many on Wall Street hailed as a signal of a renewed upward trend in U.S. stocks. This technical indicator, widely watched by analysts and traders alike, was seen as a bullish sign, suggesting that the broader market may be shifting toward a more sustainable rally despite recent price volatility and ongoing uncertainty.

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However, a closer examination of the historical data reveals that this optimistic interpretation may not be backed by strong statistical evidence.

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To assess the validity of this so-called bullish signal, an analysis was conducted using the historical performance of the S&P 500 — or its predecessor indices — dating back to the mid-1920s. The focus was on instances when the index closed above its 200-day moving average after having closed below it the previous day. These specific days are typically viewed as "buy signals" by technical traders, indicating a potential turning point in market momentum.

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However, when comparing market performance following these buy signals to the average returns during all market periods, the results tell a different story. Over the subsequent one-month, three-month, and six-month periods, the S&P 500 did experience slightly better-than-average gains. Yet over a 12-month horizon, the performance actually tended to lag behind the average.

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Importantly, all of these differences — whether better or worse — were small, generally within half a percentage point, and none were statistically significant at the commonly accepted 95% confidence level.

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In practical terms, this means that closing above the 200-day moving average doesn’t strongly indicate that the market is entering a more profitable phase. And since these performance figures don’t factor in transaction costs, the actual benefit of trading on such signals is even less compelling. Any minor edge they may suggest could be erased entirely once trading fees and taxes are taken into account.

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It’s also worth clarifying that these findings shouldn’t be interpreted as a prediction of poor market performance in the near future. Rather, the data simply shows that there’s no historical basis for expecting above-average returns purely because the S&P 500 moved above its 200-day average. Investors looking for a reliable edge should be cautious about giving too much weight to this single technical indicator.

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To further illustrate this point, consider a projection for the S&P 500 based on historical averages. If the index performs in line with its average gain for all one-month periods since the mid-1920s, it would reach 5,898.97 by June 12 — exactly one month after it most recently moved above the 200-day average.

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If, on the other hand, it follows the average trajectory seen after previous 200-day moving average buy signals, it would climb slightly higher, to 5,928.27. That’s a difference of just 29.3 points — a variance so small that it holds little practical significance for investors trying to make allocation decisions.

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Even if this minor difference were statistically meaningful (which it is not), it still wouldn’t be enough to justify making major changes to an investment portfolio. When viewed in this context, the emphasis that many market participants place on the 200-day moving average may be misplaced.

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Relying on it as a major decision-making factor ignores the reality that far more influential elements shape market performance, such as corporate earnings, interest rates, inflation trends, geopolitical developments, and shifts in investor sentiment.

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Ultimately, the broader takeaway is that while the 200-day moving average is a popular and visually appealing chart line, its value as a predictive tool is limited. Investors should resist the temptation to read too much into brief technical breakouts above this threshold.

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Instead, a more comprehensive and diversified approach to portfolio strategy — one that considers macroeconomic fundamentals, valuation metrics, and long-term trends — will likely yield more reliable results.

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In summary, the recent move by the S&P 500 above its 200-day moving average is not a definitive sign of a market turnaround. Historical data suggests it does not meaningfully improve the odds of higher returns. Investors would be better served by focusing on more substantial indicators rather than basing their decisions on what amounts to a statistically weak signal.

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