MW The S&P 500 is headed for its longest winning streak in more than 20 years. That doesn't mean the worst is over for stocks.

By Joseph Adinolfi

Rapid rebounds often occur during rough stretches for the market

Talk about a quick turnaround.

After one of the most volatile months for stocks in recent memory, the S&P 500 SPX has swung from deeply oversold to borderline overbought, based on the 14-day relative strength index, a momentum gauge popular with technical analysts.

Hopes for a kick-start to trade talks between Washington and Beijing, coupled with data showing the labor market remained on solid footing in April, have helped push the S&P 500 higher for a ninth-straight day.

As a result, the index has now erased all of the losses that followed the unveiling of President Trump's "liberation day" tariffs. If it finishes in the green on Friday, it would tally its ninth straight daily gain, the longest winning streak in more than 20 years. The S&P 500 has gained roughly 10% during this time, data showed.

This swift rebound has given amateur investors who aggressively bought the dip over the past month plenty to celebrate. Although stocks were still in the red for 2025, the S&P 500 has substantially trimmed its losses.

However, investors looking to chase the rally should proceed with caution. History shows that some of the market's most powerful rallies have occurred during broader downtrends for stocks.

For example, the index's nine-day winning streak in July 1973 occurred in the middle of a two-year bear market that saw stocks fall in both 1973 and 1974.

Accurately anticipating where stocks might be headed next is extremely difficult, but an analysis by Dow Jones Market Data showing how the index performed following past winning streaks might offer some clues.

After rising for nine days or more, S&P 500 returns six months later have averaged just 2.4%, the data showed. By comparison, the index has returned, on average, 9.3% per calendar year during that time.

Many other examples of stocks seeing sharp rallies during periods of rough sledding are apparent in the chart above. A nine-day rally in 1981 took place during the double-dip recession of the early 1980s. Later, an 11-day streak unfolded shortly before the infamous Black Monday stock-market crash in October 1987.

Performance more recently has been slightly more encouraging. After rising for nine days or more in 1995, 1997 and 2004, the market was higher six months later. Although returns following the previous nine-day winning streak in 2004 were relatively tepid, with the index up just 0.6%.

Whether the current rebound is a bear-market rally, or a more durable recovery, should become more clear over the next couple of weeks, said Jason Goepfert, founder of SentimenTrader.

"The biggest differentiation seems to be short-term follow through. If stocks continue to rise over the next one to two weeks (or not fall more than 3% or so), that would be highly unusual for a bear market," Goepfert said.

Bullish technicals aside, investors still have plenty of reason to proceed with caution. As Mark Hackett, chief market strategist at Nationwide, pointed out in emailed commentary, stocks' recent gains suggest corporate earnings have been strong enough to satisfy investors. But tensions are still elevated, he added. The White House still needs to bring home trade deals, and the economic impact from the levies remains uncertain.

Because of this, Hackett expects volatility to persist.

U.S. stocks rose on Friday, with the S&P 500 up 1.6% at 5,695 in recent trade. The Nasdaq Composite COMP was up 1.8% at 18,028. The Dow Jones Industrial Average DJIA was up 583 points, or 1.4%, at 41,328.

Ken Jimenez contributed reporting

-Joseph Adinolfi

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

May 02, 2025 15:15 ET (19:15 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.