The S&P 500 (^GSPC 0.58%) declined 8% during President Trump’s first 100 days in office, the index’s worst performance under any administration in more than 50 years. In particular, investors are worried about how changes in U.S. trade policy will affect the economy, though the president’s remarks about possibly removing Federal Reserve Chair Jerome Powell also caused consternation.
Nevertheless, the U.S. stock market recently triggered a technical indicator known as the Zweig Breadth Thrust (ZBT). Positive ZBT signals have been seen just 16 times since the S&P 500 was created in 1957, and the index has always moved higher during the next six months and the next year. In other words, the ZBT indicator has been 100% accurate.
Here’s what investors should know.
The U.S. stock market just triggered a Zweig Breadth Thrust (ZBT) signal for the 16th time since 1957
The Zweig Breadth Thrust (ZBT) is a technical indicator named for the late fund manager Martin Zweig. A ZBT signal occurs when the percentage of advancing stocks on the New York Stock Exchange (measured as a 10-day moving average) increases from less than 40% to more than 61.5% in 10 trading days. In other words, the indicator flashes following a very abrupt ramp in upward momentum in the stock market.
As mentioned, U.S. stocks have only triggered ZBT signals 16 times since the S&P 500 was created in 1957, and the index has always generated a positive return during the next six months and the next year, according to Carson Investment Research. The average return for each time period is as follows:
- 6-month return: 16%
- 12-month return: 24%
Importantly, the S&P 500 essentially trades at the same level on April 28 as when the ZBT signal started flashing on April 25. So, the index will advance approximately 16% by October 2025 and 24% by April 2026 if its performance matches the historical average.
The S&P 500 recently jumped more than 1.5% in three straight trading days for the 10th time since 1957
Interestingly, another stock market indicator sounded a bullish alarm on April 24. That was the third straight trading session in which the S&P 500 returned more than 1.5%. The index has only strung together three daily gains exceeding 1.5% on nine occasions since 1957, and it has always generated a positive return in the next year, according to Carson Investment Research.
In fact, the S&P 500 has returned an average of 21% during the year following three straight trading days with gains above 1.5%. In this situation, the index closed at 5,485 on April 24, so history says it will advance 21% to 6,637 during the next year. That implies 20% upside from its current level of 5,529.
Image source: Getty Images.
Investors should be cautious despite the recent flurry of bullish stock market indicators
Unfortunately, while both stock market indicators I’ve discussed imply significant upside in the S&P 500 in the coming months, the current situation may not fit the historical pattern. I say that because U.S. trade policy has undergone dramatic changes under President Trump for which there is little precedent.
To elaborate, despite the 90-day pause on so-called reciprocal tariffs, the duties imposed to date have already raised the average tax on U.S. imports to roughly 20%, the highest level since the early 1900s. But the economy is much bigger today, which means we are seeing trade policy upheaval on an unprecedented scale. Nobel-winning economist Paul Krugman called it “the biggest trade shock in history.”
Importantly, JPMorgan Chase strategists estimate the effective tariff rate will land between 10% to 20% after the Trump administration has finalized negotiations with foreign trading partners. Even the low end of that range represents the most aggressive trade policy since the 1940s, which makes anticipating the impact on the stock market very challenging.
Economists generally agree that tariffs increase consumer prices, slow economic growth, give disincentives to innovation, and lower living standards. In other words, they are bad news all the way around. For that reason, investors should remain cautious in the current market environment. That means buying only high-conviction stocks — those whose earnings are likely to be materially higher in five years — and investing money at a measured pace.
JPMorgan Chase is an advertising partner of Motley Fool Money. Trevor Jennewine has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JPMorgan Chase. The Motley Fool has a disclosure policy.
