Stock market indicators have rarely been seen since 1990 suggest monster gatherings. This is what investors should know.

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Stock market indicators have rarely been seen since 1990 suggest monster gatherings. This is what investors should know.

this S&P 500 (snpindex: ^gspc) Currently 14% higher than the record reached earlier this year. President Donald Trump announced in February that tariffs on goods on China, Canada and Mexico began to drop, and the losses deepened as he worked on new responsibilities for steel, aluminum and automatic imports.

But it was the 10% universal tariff issued on April 2 and the reciprocal tariffs in specific countries that did cause the stock market to collapse. The S&P 500 fell 12% over the next five trading days as Wall Street handled a radical shift in U.S. trade policy. The severity of the tariffs shocked many analysts their recession risk forecasts.

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When stock market volatility reaches its peak CBOE Volatility Index (Volatility: ^vix) It reached 52.3 on April 8, one of the highest readings since January 1990. However, similar readings are often good news for investors. After a VIX reading above 50, the S&P 500 usually produces a monster’s 12-month return.

Image source: Getty Images.

The CBOE Volatility Index (VIX) uses the prices in the S&P 500 option contracts to measure expected stock market volatility over the next 30 days. VIX is often referred to as “fear instrument” by financial media because volatility is often consistent with panic sales. In other words, the VIX and the S&P 500 usually move in the opposite direction.

Higher readings indicate more volatility, while lower readings indicate less volatility. Since 1990, the average closing value of VIX has been 19.5, although its closing value is between 9.1 and 82.7. As mentioned earlier, VIX closed at 52.3 on April 8, sending a high volatility signal. But the S&P 500 usually produces monster returns in the year after such a high reading.

Since 1990, VIX has closed more than 50 times in just 75 trading days, much less than 1% of the time. It is important that the S&P 500 index continues to increase over the next three and five years, said strategist Charlie Bilello. In other words, the VIX reading over 50 has a perfect record that predicts the upside in the stock market. The average returns during these periods are as follows:

One year return: 35%
Three-year return: 55%
Five-year returns: 129%

Interestingly, the VIX readings exceed 50 are also related to the downturn. The U.S. economy has been in a state of recession every time the index is closed in the age of 50 since 1990. This doesn’t necessarily mean we are in a recession today, but it’s certainly possible. indeed, Black Stone “I think we’re very close now, even if it’s not in a recession right now,” CEO Larry Fink recently told CNBC.

Here is the bottom line: The S&P 500 index closed on April 8 (the VIX record closed value is 52.3). If its performance matches the historical average, the S&P 500 will climb 35% to 6,727. This means the current level of 5,283 is 27%.

Investors should remember that past performance will never guarantee future results. President Trump stopped in 90 days, his most aggressive tariffs, but the government has imposed tariffs still raise the average U.S. import rate to 28%. That was the highest level since 1901.

Predicting the results of the current situation is challenging because there are few historical precedents. With the highest import taxes in more than 100 years, many economists expect tariffs to slow GDP growth and raise prices, a situation known as stagnation. Yale University’s budget lab estimates in total that tariffs will cost the average U.S. households $4,900 a year.

Here’s the bottom line: History says the S&P 500 can hold monster rally next year. But the tariffs imposed by the Trump administration could have a devastating impact on the U.S. economy. Investors can reconcile those oppositional views with cautious optimism. Tariffs may be much more advertised than the Trump administration. So it makes sense to put money into the stock market today at a rate of measure. However, investors should stick to their highest conviction stocks and be prepared to pass further declines.

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Trevor Jennewine has no position in any of the stocks mentioned. Motley fool has no position in any stock mentioned. Motley Fool has a disclosure policy.

Stock market indicators have rarely been seen since 1990 suggest monster gatherings. This is what investors should know. Originally published by Motley Fool