US Stock Market Faces Dreaded 'Death Cross' Signal This Week

GCW
May 26, 2025
2 min read

This week, the US stock market experienced a significant technical indicator known as the 'death cross,' raising concerns among investors about a potential downturn. This phenomenon occurs when the 50-day moving average of a stock index falls below its 200-day moving average, signaling weakening momentum and often foreshadowing further declines.

Key Takeaways

The S&P 500 index flashed a death cross on Monday, marking the eighth occurrence since the 2009 financial crisis.
The Nasdaq Composite Index followed suit shortly after, with the Dow Jones Industrial Average also on track to experience this ominous signal.
Historical data suggests that while a death cross can indicate bearish trends, it does not always lead to significant market declines.

Understanding The Death Cross

A death cross is a technical analysis term that indicates a bearish trend in the stock market. It is characterized by the following:

50-Day Moving Average: This is the average price of a stock index over the last 50 days.
200-Day Moving Average: This is the average price over the last 200 days.
When the 50-day average drops below the 200-day average, it suggests that the market's momentum is weakening, which can lead to further declines.

Historically, the death cross has been associated with major market downturns, including the crashes of 1929 and 2008. This week, the S&P 500's death cross has sparked fears of a similar fate, especially amid ongoing market volatility influenced by economic policies.

Current Market Conditions

The recent fluctuations in the stock market have been attributed to various factors, including:

Tariff Proposals: The uncertainty surrounding former President Donald Trump's tariff proposals has contributed to market instability.
Economic Concerns: Prominent investors, including BlackRock CEO Larry Fink, have expressed concerns about a potential recession, stating that the economy may already be in decline.

Despite these fears, analysts urge caution. Bret Kenwell, a US Investment Analyst at eToro, emphasizes that while the death cross is a bearish indicator, it does not guarantee a market crash. Historical analysis shows:

Short-Term Impact: One month after a death cross, the S&P 500 has declined four times with a median drop of 0.9%.
Long-Term Recovery: Three months later, the index has risen six times with a median gain of 5.9%.

Historical Context

Looking back at the previous seven death cross events since 2009:

Median Decline: The largest decline following a death cross was less than 7% in five instances.
Significant Drawdowns: In two cases (2018 and 2022), the index experienced larger declines of 11.1% and 14.5%, respectively.
Market Recovery: In many instances, the market had already hit its low by the time the death cross occurred.

Conclusion

While the appearance of a death cross in the US stock market this week has raised alarms, it is essential for investors to consider the broader context and historical data. The indicator serves as a warning sign, but it does not necessarily predict an imminent market crash. Investors are encouraged to remain vigilant and informed as they navigate these uncertain economic waters.