Bullish clue hidden in cyclical stocks

Key points: 

• Over 10% of cyclical sector stocks simultaneously registered a 52-week high 
• Similar expansions in new highs saw the S&P 500 rally 93% of the time
• Cyclicals outperformed the broad market, with technology displaying the most consistent results

A bullish configuration

Amid the fanfare surrounding the S&P 500's 12th record high in 2025, a more consequential signal emerged beneath the surface, one that has often preceded exceptional returns for the world's most benchmarked index.

For the first time following a six-month low, the percentage of stocks recording a 52-week high for members in the consumer discretionary, financial, industrial, and technology sectors simultaneously exceeded 10%.

In the early stages of a recovery, these four cyclical sectors tend to lead, and they just provided us with another critical piece of evidence suggesting that the uptrend in stocks should persist.

Outstanding returns

Whenever more than 10% of stocks in these cyclical sectors simultaneously hit 52-week highs for the first time following a 6-month low, the S&P 500 consistently delivered strong returns over the next 12 months. The largest loss six months later was only 4%, and 25 out of 27 signals showed a gain over the following twelve months.

Remarkably, the S&P 500 never suffered a loss exceeding 10% within the next six months, though a few came close. Even at the one-year mark, 10% drawdowns remained rare, occurring only three times. In contrast, twenty of the signals enjoyed a gain larger than 10% at some point.

Technology stood out as the most consistent relative performer among the four cyclical sectors, outpacing the S&P 500 across every time frame. Consumer discretionary and industrials followed closely, outperforming in six of the periods. 

Backtest Engine

Click here to save a modified version of this trading signal to your favorites folder in the Backtest Engine. This copy omits the six-month low condition, as the backtest engine currently supports a maximum of four conditions. Additionally, you can find a copy in the Analysts' Backtests tab under the name Cyclical Sectors 52-Week High > 10%.

What the research tells us...

A powerful trend confirmation signal has emerged, as four key cyclical sectors - technology, consumer discretionary, industrials, and financials - saw more than 10% of their constituents hit new 52-week highs.

Similar surges in cyclical leadership have historically led to robust gains over the following year, with limited downside; only three instances have experienced losses greater than 10%. These sectors also outperformed the broader market, led by technology stocks. Economically sensitive stocks are among the most effective real-time indicators of the economy. When they're leading, it typically bodes well for the stock market.