The stock market has struggled mightily in December. But just when it felt like Christmas was canceled on Wall Street this year, yesterday, stocks rallied significantly. 

Is this the start of a long overdue Santa rally on Wall Street? Our recent research actually suggests it could be the start of something much bigger… 

If you’re watching the mainstream media, you’d think that stocks are entirely falling apart right now. But that’s not the case. The S&P 500 is trading around 3,800. It was around 3,600 in both June and September. 

In other words, while the stock market has swung both violently higher and lower over the past six months, it has ultimately gone nowhere. We are exactly where we were six months ago. 

That’s unusual behavior for a bear market.

Bear market selloffs don’t happen all at once. They take “breaks.” But the “breaks” are usually very short. They almost never last as much as six months. 

When they do last that long, though, that’s typically a sign that the bear market is close to being over. 

Let’s quantify this. 

The End of the Bear Market

The S&P 500’s medium-term price trend can be encapsulated by the six-month moving average. All year long, that moving average has been falling because stocks have been falling. But in December – for the first time in this bear market – the six-month moving average actually flipped higher. 

Today, that average is 3907. That’s 0.2% higher than where it sat in November.

You may be saying: Well, why does that matter? 

Because this sort of price action is historically consistent with the end of bear markets.  

The first time the market’s six-month moving average flipped higher during the 2008 financial crisis was in May 2009. From that point, stocks soared 19% over the next year. 

The first time the market’s six-month moving average flipped higher during the early 1990s Recession was in February 1991. From that point, stocks popped 12% over the next year. 

And the first time the market’s six-month moving average flipped higher after Black Monday was in April 1988. From that point, stocks surged 19% over the next year. 

This list of examples goes on and on. Going back to 1950, the market’s six-month moving average flipping higher has consistently marked the end of bear markets and the beginning of new bull markets. 

Average returns a year after this phenomenon happens? About 20%!

Exceptions to the Rule

There have been only two notable exceptions over the past 70 years when a bear market didn’t end when the six-month moving average flipped higher. 

The most recent exception was in March 2002. At that time, the bear market didn’t end because stocks were too expensive. The S&P 500 was still trading at 21.7X forward earnings in March 2002. That’s about 25% above where the S&P 500’s forward earnings multiple sits today. 

The other exception was in October 1973. That bear market didn’t end then because inflation was heating up in a very troubling way. Inflation was running around 7% in October 1973. A year later, it was above 12%. Today, though, inflation is rapidly declining, with pretty much everyone calling for inflation to collapse toward 3% in 2023. 

In other words, the stock market did something this month that, historically, almost always marks the end of bear markets. Its six-month moving average flipped higher. 

Further, the only two exceptions to this trend hold no comparison to today. In one, stocks were way more expensive, and in the other, disinflation had yet to take root as it has today. 

The Final Word on the End of the Bear Market

The data here is pretty convincing. It strongly suggests that the 2022 bear market is on its last legs and that a new bull market will emerge in 2023. 

The emergence of this new bull market will catch a lot of investors by surprise. 

But prescient investors who see it coming – and position themselves to capitalize on it today – stand to potentially make small fortunes in 2023 while everyone else is rushing to play catch-up. 

The question is, will you be one of the investors playing catch-up? Or one of those making small fortunes?

The choice is yours. Learn more while we’re still early in this game.

On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.