S&P 500 cyclical vs. secular

Cyclical vs. Secular Trends

• Cyclical trends are tied to the business cycle.

• Secular trends span multiple business cycles and cyclical trends.

Moving averages provide guidance

• We track cyclical trends using the 40-week moving average and use the 200-week moving average as a gauge secular trends.

Moving averages provide both a level and a trend, which helps identify the cycle

• Price above a rising moving average: Bullish

• Price below a rising moving average:

  • A bullish corrective pullback within an ongoing uptrend if prices quickly recover above the moving average

  • Or a transition to a bearish trend if price cannot regain the moving average

• Price below a declining moving average: Bearish

• Price above a declining moving average:

  • A bearish corrective rally within an ongoing downtrend if prices quickly move back below the moving average

  • Or a transition to a bullish trend if price cannot drop back below the moving average

The interplay between the 40- and 200-week moving averages

An interplay between the 40- and 200-week moving averages also helps measure the position of the broader market trend. The indicator in the S&P 500 chart below, which shows the price of the S&P 500 relative to its 200-week moving average, reflects four phases:

1. Green: Bullish and in a confirmed uptrend: S&P 500 above both its 40- and 200-week moving averages - this is the current position for the SPX

2. Yellow: Corrective decline within an uptrend: S&P 500 below its 40-week moving average and above its 200-week moving average

3. Red: Bearish and in a confirmed downtrend: S&P 500 below both its 40-week and 200-week moving averages

4. Light Red: Corrective rally within a downtrend: S&P 500 above its 40-week moving average and below its 200-week moving average

The cycle shifts:

• Green to yellow - corrective phase within an uptrend

• Yellow to green - ending a downward corrective phase and continuing the uptrend

• Yellow to red - shifting to a bearish trend

• Red to light red - corrective phase within a downtrend

• Light red to red - ending an upward corrective phase and continuing the downtrend

• Light red to green - shifting to a bullish trend

Important context

These phases provide some guidance but do not represent definitive signals regarding secular bullish or bearish trend. We note that:

• The transition from red to green was part of a 2002-2007 rally within a larger secular bear market (trading range) from 2000-2013.

• A shift to green in 2010 and defending the 200-week moving average as support in 2011 preceded the secular bull market break out in 2013.

• Cyclical corrections within secular bull markets can briefly move below the rising 200-week moving average, such as in 2022 and 2020, prior to refreshing the secular uptrend the S&P 500.

Chart 1: S&P 500 Index