For the better part of the last two and a half years, the bulls have been in full control on Wall Street. Excitement surrounding the rise of artificial intelligence, euphoria concerning stock splits in some of the Wall Street's most-influential businesses, and the resilience of the U.S. economy, have all played a role in pushing the widely followed Dow Jones Industrial Average (^DJI 0.26%), broad-based S&P 500 (^GSPC 0.61%), and growth-driven Nasdaq Composite (^IXIC 0.93%) to multiple record-closing highs.
But the stock market wouldn't be a "market" without the ability for equities to move in both directions.
The last eight weeks have been nothing short of a roller-coaster ride for the Dow, S&P 500, and Nasdaq Composite. During this span, all three indexes have logged some of their largest single-session point gains and declines since their respective inceptions.
Widening the lens to examine the aggregate shows the Dow Jones and S&P 500 dipped firmly in correction territory, with the Nasdaq Composite falling into a bear market.
Image source: Getty Images.
When volatility picks up on Wall Street, it's common for investors to seek out data points and events that have previously correlated with directional moves for stocks. While no correlative data point or event can guarantee short-term directional moves on Wall Street, there's no denying that some have been strong precursors to moves higher or lower in the benchmark S&P 500 throughout history.
One exceptionally rare correlative event just occurred for the stock market, and it has a, thus far, flawless track record of forecasting what's next for the S&P 500.
Tariff and valuation uncertainty rule the roost on Wall Street
Before diving headfirst into this correlative event, some background is needed to explain how things became so volatile on Wall Street.
Although fear and uncertainty are the two factors that typically incite volatility and weigh down the price of equities, the bulk of the blame for the stock market's recent "hiccups" can be attributed to President Donald Trump's tariff policy, as well as the historical priciness of stocks.
On April 2nd, a day which the president has referred to as "Liberation Day" for America, Trump unveiled his broad-stroke tariff policy. He introduced a sweeping global tariff of 10%, as well as implemented higher reciprocal tariffs on select countries that have traditionally run unfavorable trade imbalances with the U.S. As of April 9, all of these reciprocal tariffs, sans those directed at China, are on a 90-day pause.
Though President Trump's aim with tariffs is to generate revenue, protect U.S. jobs, and encourage domestic manufacturing, there are some serious potential deficiencies with his policy.
For starters, it could incite a trade war with China, the world's No. 2 economy by gross domestic product, or possibly even hurt trade relations with America's allies.
Additionally, Trump's tariff policy makes no clear differentiation between output and input tariffs. An output tariff is placed on a finished good entering the country, while an input tariff is an added tax on a good used to complete a product in the U.S. Input tariffs are disadvantageous for American businesses from a pricing standpoint.
S&P 500 Shiller CAPE Ratio data by YCharts.
The other big problem is that the stock market entered 2025 at one of its priciest valuations in history. Based on the S&P 500's Shiller price-to-earning (P/E) Ratio, which is also known as the cyclically adjusted P/E Ratio (CAPE Ratio), Donald Trump inherited the priciest market of any incoming president.
In December, the S&P 500's Shiller P/E hit a high almost 39 during the current bull market cycle. With the exception of its all-time high of 44.19 in December 1999 and its January 2022 peak of around 40, this valuation tool, which has been back-tested 154 years, has never been higher.
The silver lining is the ongoing correction in the S&P 500 has lowered the Shiller P/E multiple to 33.38, as of the closing bel on April 15. Unfortunately, this is still nearly double its 154-year average of 17.23.
Furthermore, the previous five occurrences where the Shiller P/E topped 30 for at least two months eventually saw the Dow Jones, S&P 500, and/or Nasdaq Composite shed 20% (or more) of their respective value.
The stock market has never bottomed out at such a historically pricey valuation premium.
Image source: Getty Images.
This exceedingly rare event should give optimists reason to smile
With a better understanding of the backstory to Wall Street's historic bout of volatility, let's dive into the rare event that just occurred, which has consistently boded well for optimistic long-term investors.
On April 9, the day President Trump announced a 90-day pause on most reciprocal tariffs, the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite logged their largest single-day nominal point gains in their respective histories. The Dow gained 2,963 points (its 19th-largest percentage increase in history), the S&P 500 soared 474 points (tied for the eighth-biggest move up on a percentage basis), and the Nasdaq Composite tacked on 1,857 points (its second-largest percentage gain since inception).
Although history shows that investors might take a few days or weeks to digest such a large move in equities, outsized single-session gains have been a harbinger of green arrows for stocks since 1980.
As you'll note in the post below on social media platform X from Carson Group's Chief Market Strategist Ryan Detrick, April 9 was a truly historic day for optimism on Wall Street. It marked only the seventh times in the last 45 years that New York Stock Exchange (NYSE) advancing volume (i.e., share volume tied to stocks that rose during the session as a percentage of total NYSE volume) topped 97%. In fact, the 98.6% advancing volume for the NYSE on April 9 was the highest on record, dating back to 1980.
Last Wednesday saw 98.6% of all the volume on the NYSE advance. That was the highest ever (using data since 1980).
-- Ryan Detrick, CMT (@RyanDetrick) April 14, 2025
Dates like Aug '82 and March '09 are in there and strong future returns are quite impressive. pic.twitter.com/0sxi4REAqf
Although future returns for the S&P 500 one month later are somewhat mixed, the bulls absolutely run wild when looking out 12 months following these historic up days. All six prior instances where the NYSE had at least 97% advancing volume since 1980 were followed by double-digit percentage gains in the S&P 500 one year later.
To build on this point, the stock market didn't just fall in line with its historic long-term return average after these rare up days. The average 12-month gain was 29.2%, which is more than triple its average annual return of 9.2% since 1950. This is to say that outsized advancing volume days on the NYSE have, without fail, acted as a green light for stocks to rocket higher over the last 45 years.
Keep in mind this strong correlation between historic up days for the stock market and future S&P 500 returns doesn't concretely guarantee the benchmark index will be higher 12 months from now. As noted, the Shiller P/E is trading at a premium valuation, and the market has never bottomed with a Shiller P/E north of 30.
But thanks to the nonlinearity of stock market cycles, patience has a way of paying off handsomely for long-term investors. Even if tariff- and valuation-related uncertainty whipsaws equities for months to come, the long-term expansion of the U.S. economy, and the ability for time-tested businesses to take advantage of long-winded periods of economic growth, should eventually lift the Dow, S&P 500, and Nasdaq to new heights.
