On April 14th the S&P 500 triggered a 'death cross.' This occurs when its 50-day moving average falls below the 200-day moving average, historically signaling potential declines, as seen in March 2022, though not always predictive of major downturns.
» That's it folks. Place your bets. «
The S&P 500 Shiller CAPE Ratio, also known as the Cyclically Adjusted Price-Earnings ratio, is calculated by dividing
the current price of the S&P 500 by the 10-year moving average of its inflation-adjusted earnings.
The March 2022 and the April 2025 death crosses in the S&P 500 (daily bars).
S&P 500 Forward Returns when there is a 'Death Cross' (1953-2022).
» Should we care? Yes, we should. The forward-looking data isn't the best going out 6 months (red box). «
The above table lists death cross events in the S&P 500 from 1953 to 2022, and provides forward returns over various time horizons (6 days, 1 month, 3 months, 6 months, 1 year) after each event:
- Short-term returns (6 days) are volatile, with 11 of 18 instances showing negative returns. The average loss is small, suggesting the immediate impact of a death cross is inconsistent. For example, the +8.63% gain in 1962 contrasts with the -11.51% loss in 1978, indicating no clear directional bias in the very short term.
- One-month returns lean bearish, with 13 of 18 instances negative. The worst case (-12.75% in 1929) aligns with the Great Depression’s onset, while the best case (+8.66% in 1978) shows occasional rebounds. The negative average suggests a death cross often precedes short-term weakness, though not always severe.
- Three-month returns are more consistently negative, with 14 of 18 instances showing losses. The -22.13% drop in 1929 reflects extreme market stress, while the +14.91% gain in 1962 is an outlier. The stronger negative average (-3.16%) indicates that death crosses often signal broader market declines over a few months.
- The six-month period shows the most pronounced bearish tendency, with 14 of 18 instances negative. The -35.97% loss in 1929 is the worst, tied to the Great Crash, while the +28.21% gain in 2020 reflects the rapid recovery post-COVID crash. The -4.81% average loss, emphasized in the table, suggests a death cross is a stronger bearish signal over this horizon, though exceptions exist.
- One-year returns are mixed, with 10 of 18 instances positive. The +64.41% gain in 2020 is the highest, driven by post-COVID stimulus, while the -44.95% loss in 1929 is the lowest. The positive average (+1.97%) suggests that, over a year, the market often recovers or stabilizes after a death cross, reducing its long-term predictive power.
The table provides compelling evidence that S&P 500 death crosses are associated with negative returns in the short-to-medium term, particularly at 6 months (-4.81% average), with 78% of instances showing losses. However, the signal’s reliability weakens over a year, where returns average +1.97% and are positive in 56% of cases. Extreme outcomes (e.g., 1929’s -44.95%, 2020’s +64.41%) highlight the importance of context and combined signals, such as Guilherme Tavares' CAPE ratio simultaneously exceeding two standard deviations above its long-term trend.
However, again: The March 2000 death cross triggered a severe, multi-year bear market with over 40% S&P 500 losses due to the dot-com bubble’s collapse, while the March 2022 death cross led to a milder 16% decline, recovering within a year amid inflation-driven volatility. The 2000 event was more systemic, delaying recovery until October 2002, whereas 2022’s faster October bottom reflected policy-driven resilience. The April 2025 death cross, following a 19% drop, could mirror 2022’s shorter correction if temporary factors dominate or 2000’s deeper downturn if economic weaknesses intensify.
