A bullish shift in long-term uptrends

Key points:

• The percentage of S&P 500 stocks with a medium-term average above a long-term average rose above 80%
• Similar moving average trend conditions suggest a sustainable long-term uptrend for the S&P 500
• Defensive sector stocks have exhibited the most significant positive shift towards uptrends

More and more stocks are shifting to long-term uptrends

Whether annual highs or long-term trend-following indicators, the internal health of the S&P 500 continues to improve, indicating a bullish backdrop for stocks.

The latest indicator to flash an all-clear signal is the percentage of S&P 500 stocks with a 50-day average above their 150-day average. This long-term indication of stock participation cycled from below 20% to above 80% for the first time in over three years.

Readings exceeding 80% are associated with an annual return of 13.3% since 1928, twice the return observed when the indicator is below that threshold.

Similar long-term stock trend shifts led to bullish outcomes

The S&P 500 has historically demonstrated exceptional performance when the percentage of stocks with a 50-day average above their 150-day average shifted from below 20% to above 80%. Consistency has been remarkable since 1942, with only one loss over the subsequent six and twelve-month periods.

From 1938 onward, the S&P 500 has consistently avoided experiencing a maximum loss exceeding -10% in the subsequent three months, hinting at a potential low volatility uptrend for the world's most benchmarked index. 

The improvement in uptrends has largely been driven by defensive sectors, which have been hindered by the FOMC interest rate hiking cycle. 

Healthcare, a group I highlighted in a recent research report, led the expansion in uptrends over the last month. 

What the research tells us...

For only the 27th time since 1932, the percentage of S&P 500 stocks in a long-term uptrend cycled from below 20% to above 80%. Following comparable signals, the world's most benchmarked index was higher 81% of the time a year later. Since 1942, the outcomes have been overwhelmingly positive, showing just one loss in the subsequent six and twelve-month periods. Defensive sectors led the bullish shift in trends, notably spearheaded by Healthcare.