Breadth indicators have drastically improved over the last month. Earlier this week, the Bullish Percent for the S&P 500 ([^BPSPX]) crossed above 70% and now sits at a level of 74%. Readings above 70% are often associated with a frothy market in the short-term but it is generally a good sign on longer time frames.

Breadth indicators have drastically improved over the last month. Earlier this week, the Bullish Percent for the S&P 500 (^BPSPX) crossed above 70% and now sits at a level of 74%. Readings above 70% are often associated with a frothy market in the short-term but it is generally a good sign on longer time frames. Nonetheless, over the last few years readings above 70% have tended to be short-lived, usually lasting no more than a month. This does suggest that the recent pace of the rally in equities is due to slow at least. To be more succinct, elevated breadth readings tend to lead to more muted returns over the next couple of months, but long-term it is a positive. The last time ^BPSPX moved above 70% was in September 2024.

One of the more unique circumstances surrounding this trip above 70% is that ^BPSPX dropped below 20%. This is the twelfth time since 1998 that ^BPSPX has made a roundtrip from below 20% to above 70%. This was the second-fastest roundtrip in history as it took 35 days from when ^BPSPX dropped below 20% to get back above 70%. The only period it took less time to make a roundtrip was in March 2020 when it only took 21 days. Forward returns for the S&P 500 following the ^BPSPX crossing above 70% after dropping below 20% are on average positive more than one month out, but they aren’t robust. Returns one year out are more positive than any other time frame. This goes along with what was mentioned earlier, high levels of breadth may signal a cooling off period for the market over the next few months, but it is a positive on longer time frames.