Depending on your investing timeline, Wall Street can be a pathway to financial dreams or a source of frustration. Over multiple decades, it's proved to be an unstoppable beast that, on an annualized basis, outperforms bonds, commodities, and bank certificates of deposit (CDs). But over the short-term, it's no more predictable than a coin flip.

The past couple of years has been a perfect example of Wall Street's unpredictability. In 2021, the storied Dow Jones Industrial Average (^DJI 0.40%), benchmark S&P 500 (^GSPC 1.02%), and growth-driven Nasdaq Composite (^IXIC 2.02%), all soared to all-time highs. This was followed up by all three indexes plummeting into a bear market last year.

A shadowy silhouette of a bull set against a completely dark background.

Image source: Getty Images.

Whipsawed markets often have investors wondering when the short-term volatility and uncertainty will end. If you're a believer in historical events rhyming on Wall Street, one bull market indicator may hold the answer.

This bull market indicator hasn't been wrong since 1950

As you may have noticed, the bull is back on Wall Street... sort of.

By one line-in-the-sand definition, a bull market begins when a major index bounces more than 20% off of its bear market closing low. That occurred the previous week, with the S&P 500 joining the Nasdaq Composite as being in "new" bull markets. Of course, we've also seen sizable bear market rallies over the past century that didn't actually precipitate a new bull market.

But by one measure, this new bull market bodes extremely well for optimists.

According to Ryan Detrick, the Chief Market Strategist at Carson Group, the broad-based S&P 500 has a knack for delivering green when it goes more than a year without hitting a 52-week high.

Based on data from Carson Investment Research, there have been 15 prior instances since 1950 where the S&P 500 endured at least a 12-month stretch without hitting a 52-week high (i.e., not including the 16th incidence, which occurred on June 12, 2023). 

While its performance in the month that followed this new high has been hit-and-miss, the S&P 500's return one year after hitting its brand-new 52-week high is crystal clear. In 15 out of 15 instances, the S&P 500 was higher one year later, with an average return of 17.4%. If history were to rhyme yet again, the S&P 500 will find itself decisively higher on June 12, 2024..

Keep in mind this isn't the only dataset Detrick and Carson Group have offered up that implies a coming running of the bulls. Detrick has been steadfastly bullish since prior to the beginning of 2023, which, in hindsight, has been a prescient call. Datasets that include the Nasdaq 100 and the S&P 500's performance one year after officially bouncing 20% from a bear market low, show flawless patterns of upside.

However, contrarian evidence is mounting

Although Detrick's and Carson Group's datasets paint a very clear picture of a new bull market getting its feet wet, there's quite a lot of mounting evidence that suggests the "new" bull market might, in fact, be nothing more than a sizable bear market rally. Below are just some of the examples of warnings currently being sent to Wall Street and investors.

10 Year-3 Month Treasury Yield Spread Chart

10 Year-3 Month Treasury Yield Spread data by YCharts. Gray areas denote U.S. recessions.

To start with, the Federal Reserve Bank of New York has a recession probability tool that's screaming "recession" louder than it has in over 40 years. This recession-probability indicator uses the difference in yield (i.e., spread) between the three-month and 10-year Treasury bonds to determine how likely an economic downturn is within the next 12 months. This spread is inverted to a degree that we haven't seen since 1981. As a result, the NY Fed's tool is forecasting a 70.85% chance of a U.S. recession within the next 12 months. 

Investors can also look at various lending metrics as a sign of concern. Commercial bank lending has declined by more than 1.5% only four times in 50 years.  The previous three times banks tightened their lending standards to a meaningful degree, the S&P 500 lost around half of its value. The fourth instance is happening right now.

Don't forget about M2 money supply, which is enduring its first contraction since the Great Depression. M2, which takes into account everything in M1 (cash, coins, demand deposits in a checking account, and traveler's checks) and adds savings accounts, money market funds, and CDs under $100,000, has fallen by 4.8% from its peak after a historic jump during the COVID-19 pandemic.  A declining money supply coupled with above-average inflation is often a recipe for a deflationary downturn.

Another example that I touched on this past week is the cardboard box recession that's underway. Even though the U.S. is more reliant on technology than ever before, goods are still shipped in corrugated boxes. A double-digit drop-off in cardboard box shipments suggests that economic activity isn't as strong as advertised.

Lastly, market breadth has been downright awful. While you've probably made bank owning the FAANG stocks and other megacap, high-growth tech names in 2023, roughly 10 S&P 500 components account for the entirety of this years' gains.

Even though Detrick's datasets have a flawless track record, so do a number of recessionary/bear market indicators over the same timeline.

This is the closest thing you'll get to a guarantee on Wall Street

With highly successful datasets contradicting each other, guessing what stocks are going to do over the short run can be a maddening process. When it comes to guarantees, the closest thing you'll find on Wall Street is that patience pays.

As noted, predicting what the Dow Jones, S&P 500, and Nasdaq Composite are going to do over a period of months, or even a few years, is a guessing game. But forecasting what these indexes will do over a period of 20 years isn't guesswork -- at least based on what history tells us.

A smiling person looking out a window while holding a financial newspaper.

Image source: Getty Images.

My favorite dataset to rely on comes from market analytics company Crestmont Research. What Crestmont did is examine what a hypothetical investor would have made, including dividends, if they'd purchased the S&P 500 (via a tracking index) and held that position for 20 years. Because the components of the S&P 500 are so similar to other major indexes, such as the Dow, Crestmont was able to back-test its dataset all the way to 1900. Doing so gave it 104 ending years of rolling 20-year total returns (1919-2022). 

Crestmont's annually updated report shows that all 104 ending years produced a positive total return, with over half of these end years leading to an annualized total return of between 9% and 17.1% over 20 years. In other words, this dataset has conclusively shown that time in the market handily trumps trying to time the market.

If you need further proof that optimism pays, just pull up a long-term chart of the Dow Jones Industrial Average, S&P 500, or Nasdaq Composite. The further you look back, the more each correction, bear market, and crash looks like a minor blip.

Although I've personally declared shenanigans on the "new" bull market, I haven't lost sight of the fact that patience pays on Wall Street.