Trevor Jennewine, The Motley Fool
4 min read
The S&P 500 (SNPINDEX: ^GSPC) fell 9% from its high in March, after President Trump authorized military action in Iran. Investors sold stocks fearing that oil supply disruptions would make inflation worse, forcing the Federal Reserve to raise interest rates. And they were right to worry.
Brent Crude oil briefly topped $130 per barrel for the first time since March 2022 following the initial wave of attacks. Since then, inflation fueled by high energy prices has reached its highest level in three years. But the market quickly shrugged off geopolitical tensions and economic uncertainty amid a wave of strong earnings reports.
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Encouraging financial results supported a historic rally in the stock market. The S&P 500 advanced more than 19% during the two-month period that ended on May 29, something it has done only seven times before. And history says that rally is an ultra-bullish signal that portends more upside.
Here’s what investors need to know.
The S&P 500’s historic rally is an ultra-bullish signal that hints at more upside
The S&P 500 surged 19.5% over the two-month period that ended on May 29. The index has achieved two-month returns exceeding 19% on only seven other occasions in history, according to Carson Group. Those events have always been precursors to upside in the next year, and the returns have usually been robust.
The following chart shows past incidents when the S&P 500 posted two months of returns of at least 19%; it also shows how the index performed during the next year.
|
Date S&P 500’s 2-Month Gains Top 19% |
S&P 500’s Return Over the Next 12 Months |
|---|---|
|
February 1975 |
29% |
|
October 1982 |
32% |
|
March 1991 |
8% |
|
December 1998 |
19% |
|
April 2009 |
36% |
|
May 2020 |
46% |
|
June 2025 |
23% |
|
Average |
28% |
Data source: Carson Investment Research. Percentages have been rounded to the nearest whole number.
Following two-month rallies where the S&P 500 has gained at least 19%, the index has returned an average of 28% during the next year. We can use that information to make an educated guess about where the stock market is headed.
The S&P 500 closed at 7,580 on May 29. If the index’s performance matches the historical average, it will advance 28% to 9,700 by the same date next year. That implies nearly 29% upside from its current level of 7,511.
