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Market History

Should you be worried about the “Death Cross”?

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On Monday I started seeing the ominous headlines on financial television and websites. The S&P 500 had just made a “Death Cross”, defined as when the 50 day moving average of stock prices crosses below the 200 day moving average. While the term sounds serious, is this something investors should be worried about?

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What can history tell us about current market worries?

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With the market struggles over the past few months and world events over the past few days, there have been no lack of reasons for investors to be concerned. Here is a quick list in no particular order.

  • Inflation – At 7.5%, inflation is at levels not seen since the early ’80’s.
  • Consumer confidence – Because of high inflation, consumers are less confident about their financial well-being than they were at the start of the pandemic in 2020.
  • Rising interest rates – To try and get inflation back under control, beginning in March, the Fed is expected to incrementally raise interest rates anywhere between 1% – 1.75% through the end of the year.
  • Investor confidence – The AAII index of investor sentiment shows investors haven’t been this bearish since the start of the pandemic when the market dropped over 30% in a month.
  • Geopolitical instability – Last but certainly not least, Russia has threatened launched an invasion of Ukraine.

(Notice Covid-19 is not on the list. The market has already concluded that this risk is behind us.)

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Overdue for a market pullback? Maybe it’s already happened.

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Over the past month I’ve started seeing news about how it’s been quite a while since the market has had a 5% pullback. And while technically true, the overall index movement has covered up a lot of volatility. Many areas within the market have had drawdowns of 5% or more this year. Maybe that overdue market pullback has already happened.

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