Investors at a crossroads as
an ominous signal flashes red

Key takeaways:

• The "death cross," a technical market indicator often seen as a sign of deepening market weakness, appeared in the S&P 500^® Index on April 14, the first time in three years.
• Don't use the death cross for market timing; instead, investors should view it as a single data point within a wider analytical framework.

04/23/2025 – So far this April, financial markets have experienced volatility reminiscent of the most turbulent periods in the last 30 years. Amid the fog of policy uncertainty from Washington D.C., investors are navigating a landscape marked by decelerating economic conditions and potential deterioration in corporate earnings.

As if these challenges were not daunting enough, the S&P 500^® Index has now flashed an ominous signal to investors—the "death cross." This technical milestone occurs when the 50-day moving average of the S&P 500 falls below the 200-day moving average, often seen as an indicator of deepening market weakness. Financial writers have noted the most recent occurrence of the death cross on April 14, marking the first in three years.

While the death cross has sometimes preceded stock market selloffs, such as in December 2000 and December 2007, it's not a definitive signal of future weakness. The outcomes following a death cross have often been mixed, depending on the broader market context. As the accompanying table shows, the average returns for the S&P 500 in the two years following a death cross have been positive across the board.

Rather than viewing the death cross as a market timing tool or an endorsement of a bearish investment thesis, disciplined investors should treat it as one data point among many, to be analyzed within a broader context.

For instance, what's the current leadership profile of the market, and what could that potentially signal? Or what are the fundamental drivers that could support a bullish or bearish thesis? The current rotation in leadership into the more defensive sectors of the stock market might imply investors are becoming overly cautious. And recent market jitters reflect growing doubts over consensus estimates for S&P 500 earnings growth, which earlier this year were projected to hit approximately 10% in 2025.

While the death cross may catch the attention of investors and prompt deeper examination of market trends, it shouldn't shape the investment outlook or be the basis for investment decisions. Remember, it's fundamentals such as earnings growth and the dynamics of the economic cycle that power stock market trends. Investors should focus on constructing a portfolio that balances risk and expected return, and maintain a long-term perspective that looks beyond the short-term sways of market momentum.