This indicator has correctly predicted where US stocks are heading every year since 1950. Here's what it's saying now

Are US stocks about to go up or down?

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Key points

  • One market indicator has correctly predicted which direction US stocks will head 26 out of 26 times since 1950 
  • That indicator is the S&P 500, which has stayed in the green if it's trading 7% or higher on the 100th trading day of the year, for 73 years 
  • This may have implications for ASX shares, which typically follow the lead of the US 

US stocks have headed in the direction that one particular market indicator has gone in 26 out of 26 cases over the past 73 years.

It's never been wrong.

As the old disclaimer goes, past performance is not necessarily indicative of future performance, but maybe this is the exception?

Are US stocks about to go up or down?

The indicator we're referring to is the S&P 500 Index (SP: .INX).

The S&P 500 comprises the 500 largest companies listed on the New York Stock Exchange.

As pointed out in a tweet last month by Carson Group's chief marketer Ryan Detrick, the S&P 500 has always stayed in the green if it's trading 7% or higher on the 100th trading day of the year.

When it's trading like that, it averages a 23%-plus return for the full year, too.

The 100th trading day for US stocks was 25 May. And guess what happened last week?

US stocks officially entered a new bull market.

S&P 500 year to date (Source: Trading View)

What makes this a bull run?

As we reported, the S&P 500 Index (SP: .INX) has now lifted 20% from its most recent low in October last year. A 20% recovery indicates a new bull run has started.

The Dow Jones Industrial Average Index (DJX: .DJI) entered a new bull phase in November, and the Nasdaq Composite Index (NASDAQ: .IXIC) did the same in May.

As the old saying goes, when US stocks sneeze, ASX shares catch a cold. So when US stocks roar, it's surely just a matter of time before ASX stocks follow?

As the chart above shows, the S&P 500 is up 13.5% in the year to date. By comparison, the S&P/ASX All Ordinaries Index (ASX: XAO) is up just 2.7% over the same period, as seen in the chart below.

S&P/ASX All Ordinaries Index year to date (Source: Trading View)

However, it's worth noting that there were hopes in May that the US Fed was done with raising interest rates, which may have contributed to the S&P 500 rising in recent weeks.

As reported by CNN, the Fed's May statement included mention of "determining the extent to which additional policy firming may be appropriate".

This language was quite different from the March statement, which said: "The committee anticipates that some additional policy firming may be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2% over time."

Here in Australia, however, Reserve Bank Governor Philip Lowe has indicated we may have further to go on rates.

Motley Fool contributor Bronwyn Allen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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