The S&P 500's Golden Cross: A New Bull Market or a False Dawn?

The S&P 500's 50-day moving average is poised to cross above its 200-day counterpart this month—the first such “golden cross” since February 2023—a technical signal historically heralding bullish momentum. Yet, as investors weigh this optimistic indicator against stubborn inflation, geopolitical risks, and valuation concerns, the question looms: Is this a sustainable bull market revival or a fleeting illusion?

The Golden Cross: A Technical Triumph

The golden cross, defined by the 50-day MA surpassing the 200-day MA, has been a reliable bullish signal since 1928. Historically, the S&P 500 has risen one year later in over 71% of cases, with an average gain of 13% in the past 20 instances. .

This latest crossover arrives amid a dramatic rebound from April's 21% selloff, which briefly triggered a “death cross” (the inverse of a golden cross). By late June, the index had clawed back 27%, driven by easing trade tensions and strong corporate earnings. Piper Sandler's Craig Johnson sees this as a “healthy sign for the second half,” projecting the S&P 500 could hit 6,600 by year-end.

Bullish Momentum or Buyer Beware?

While technicals suggest strength, skeptics point to red flags. Mark Hulbert notes the gold-platinum price ratio—a short-term contrarian indicator—has turned bearish, signaling potential near-term volatility. Meanwhile, the S&P 500's rapid return to record highs after a 15%+ correction is its fastest since 1987, raising questions about whether this rally is overdone.

Macroeconomic Crosscurrents

Inflation: Slowing, but Still Elevated

The Federal Reserve's preferred gauge, the PCE price index, dipped to 2.1% year-over-year in April, below its 2.6% end-2024 peak. Core PCE (excluding energy/food) remains stubborn at 2.5%, above the 2% target. Tariffs on imported goods, particularly appliances and electronics, are fueling core goods inflation, which rose to 0.2% in April.

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Fed Policy: Patient but Watchful

The Fed acknowledges inflation is easing but remains “elevated.” With unemployment at 4.2% and moderate job growth, the labor market is “about in balance,” per Fed Chair Powell. While no rate hikes are anticipated this year, the central bank will monitor tariff-driven price pressures and Middle East tensions, which could disrupt oil markets.

Valuation Concerns

The S&P 500's price-to-earnings (P/E) ratio now sits at 23x trailing earnings—above its 20-year average of 18x. Historically, such valuations have preceded lackluster returns unless earnings growth accelerates. The question is: Can earnings keep pace?

Investor Sentiment: A Delicate Balance

Bullish sentiment is buoyed by seasonal trends: The S&P 500 averages a 3.46% gain between June 26 and July 31, with 14 of the past 15 years ending positively. However, the University of Michigan's short-term inflation expectations hit 5.1% in June—up sharply from 2.8% in December—suggesting households are skeptical of the Fed's progress.

The Bottom Line: Position for Selectivity and Volatility

The golden cross is a compelling technical signal, but investors must navigate a minefield of risks. Here's how to position:

1. Overweight Equities, but Stay Defensive:
2. Focus on sectors benefiting from rising rates (financials) and inflation-resistant industries (energy, industrials).

3. Avoid overpaying for growth: Use pullbacks to buy quality stocks with strong balance sheets.

4. Hedge Against Volatility:

5. Allocate 5-10% to inverse ETFs (e.g., S&P 500 Put Options) or gold, which often performs well during inflation scares.

6. Monitor Tariffs and Trade:

7. Companies reliant on imported components (e.g., tech hardware) face headwinds. Favor domestically focused firms or those with pricing power.

8. Stay Liquid:

9. Keep 15-20% of portfolios in cash to capitalize on dips.

Conclusion

The golden cross is a bullish milestone, but it's not a guarantee. Investors must weigh its historical reliability against today's unique challenges: geopolitical instability, tariff-driven inflation, and stretched valuations. The next few months will test whether this is the dawn of a new bull market—or a fleeting sunrise.

As the saying goes: Buy the rumor, sell the news. In this case, the rumor is a golden cross; the news will be whether earnings and inflation align to sustain it. Proceed with caution—and a plan.