Market headlines and a roughly 10% year-to-date drop in the S&P 500 may cause some investors to hit pause. But history shows that buying opportunities often arise during pullbacks.
Since its inception as a benchmark index in 1957, the S&P 500 has weathered multiple recessions, crashes, and recoveries—returning more than 10% per year, on average, over the decades, and rewarding patient investors who tune out the noise.
This article explains why the S&P 500 remains a cornerstone holding, which four market indicators matter most, and how to judge whether recent dips present a buying opportunity.
Key Takeaways
- The S&P 500 index generates average yearly returns of around 10%, even while periodically experiencing market corrections.
- Long-term investors have historically found market pullbacks as valuable opportunities to purchase discounted assets.
- Holding the S&P provides diversification by spreading investments over 500 major U.S. corporations.
- During times of market instability, staying the course and employing dollar-cost averaging is often the smart approach.
Reasons To Invest in the S&P 500
Diversification
The S&P 500 gives investors one-stop access to 500 of the biggest American-listed companies, which span 11 key industry sectors, together representing approximately 80% of investable U.S. market cap.
This broad diversification also helps mitigate risk by preventing any single company or industry from having an outsized impact on your portfolio. Even when specific components may struggle, other parts of the index can deliver better results.
Historical Stability
The S&P 500 stands out as able to deliver sustained long-term stability. The index has weathered oil shocks, inflation, stagflation, the dot‑com bust, the Great Recession, and the 2020 pandemic, yet its average total annual return remains above 10%.
This stability stems from its composition. The S&P 500 index continually adjusts its composition using market capitalization weighting and periodic rebalancing, so that the index evolves alongside economic changes by substituting struggling companies with new market leaders.
The index’s resilience ensures wealth-building potential even through difficult economic cycles.
Long-term Potential
Past performance of the S&P 500, while not a sure guarantee of future success, nevertheless supports the argument for investing over the long term. If you had invested $10,000 in the S&P 500 on the first trading day of January 2000, it would have grown to nearly $66,000 by the end of 2024.
Historically, market corrections (declines of 10% or more from recent highs) have given investors room to buy more shares at better prices. The data confirm that each major downturn in the S&P was followed by an eventual recovery, often reaching new highs in the months and years that followed.
Those investors who maintained discipline and patience during market downturns and saw these events as buying opportunities have consistently benefited.
Tip
Investors can buy an S&P 500 ETF or index fund to gain easy, low-cost access to the index in a single security.
4 Market Indicators To Watch in the S&P 500
Market indicators are numerical figures or statistical gauges—often derived from price, volume, or options data—that can help traders and investors assess the S&P 500’s trend strength, risk, or sentiment.
- Volume indicators: Look at trading activity to estimate the level of conviction behind price movements. Volume metrics are used to see if prices have enough market participation to sustain trends.
- Trend indicators: Reveal the trajectory of prices over multiple time frames. Trend tools can recognize uptrends, downtrends, or sideways markets.
- Volatility indicators: Track the intensity and pace of price changes (in either direction), providing insights on market risk levels and possible turning points. Investors find volatility metrics useful for evaluating market sentiment and identifying stretches of excessive fear or complacency.
- Momentum indicators: Follow price movement changes to detect overbought and oversold market conditions alongside potential reversal points. Investors use these tools to identify acceleration or deceleration in the S&P 500’s price movement, which offers early indications of possible trend changes before their occurrence in the price.
| Category | Indicator | What It Measures | Why It Matters |
|---|---|---|---|
| Volume | Average daily trading volume | The average number of shares or contracts traded per day over a defined period. | High volume on rising days signals institutional buying conviction, while low volume rallies may lack follow-through. |
| Volume | On-balance volume (OBV) | Cumulative sum that adds volume on up-price days and subtracts it on down-price days. | A rising OBV with flat prices can presage a breakout, while falling OBV warns of distribution even if prices hold. |
| Volume | Volume-weighted average price (VWAP) | The average traded price for the day, weighted by volume, calculated intraday. | Price above VWAP suggests strong buying pressure; trading below VWAP often indicates sellers dominating the session. |
| Trend | 200-day simple moving average (SMA) | The mean closing price of the index over the past ~200 trading days. | Sustained price above the 200-day SMA generally denotes a bullish regime, while a drop below can signal a longer-term downtrend. |
| Trend | Golden cross / death cross | The crossover events between the 50-day and 200-day SMAs (golden cross when 50 > 200; death cross when 50 | A golden cross is widely viewed as a bullish signal; a death cross often foreshadows further weakness. |
| Trend | Average directional index (ADX) | A smoothed indicator that quantifies trend strength (regardless of direction) on a 0—100 scale. | Readings above 25—30 indicate a strong trend (either up or down), helping investors decide when to follow or sit out. |
| Volatility | CBOE volatility index (VIX) | The market’s 30-day implied volatility derived from S&P 500 option prices. | Often called the “fear gauge,” a VIX above ~30 signals elevated uncertainty, while levels under ~20 imply relative calm. |
| Volatility | Average true range (ATR) | The average daily price range (high minus low), smoothed over a set period (commonly 14 days). | A rising ATR denotes increasing volatility and risk; a low ATR often accompanies range-bound markets. |
| Volatility | Bollinger Bands | The distance between the upper and lower Bollinger Bands, which are set at ±2 standard deviations around a moving average. | Narrow bands (low width) suggest a “squeeze” and potential breakout; wide bands indicate elevated volatility that may soon contract. |
| Momentum | Relative strength index (RSI) | An oscillator that compares the magnitude of recent gains to losses on a 0—100 scale. | RSI above 70 can indicate overbought conditions; below 30 may signal oversold levels—useful for timing contrarian entries. |
| Momentum | Stochastic oscillator | Compares the current closing price to its price range over a specific look-back period (0—100 scale). | Readings above 80 point to overbought territory; below 20 suggest oversold—crossovers between %K and %D lines can trigger buy/sell signals. |
| Momentum | Moving average convergence divergence (MACD) | The difference between the 12- and 26-period EMAs, with a 9-period EMA “signal line.” | Crossovers of the MACD line and signal line indicate shifts in momentum; divergence between MACD and price can foreshadow reversals. |
Important
You can find up-to-date values for these and other indicators via your online broker and from several free or subscription-based financial analytics websites.
Should I Buy the S&P 500 During a Recession?
Historically, purchasing after the National Bureau of Economic Research (NBER) declares a recession has delivered average returns comparable to—or better than—buying at other times, provided the holding period is sufficient (i.e., three years or longer).
What Is the S&P 500 Forecast for 2025?
Wall Street analysts’ targets vary: Goldman Sachs recently cut its year‑end 2025 forecast to 6,200 from 6,500, while UBS trimmed its outlook from 6,400 to 5,800. These downward revisions are due mainly to the economic fallout from Trump’s sweeping tariffs.
What Is the Annual Average Return on the S&P 500?
From its inception in 1957 through April 2025, the index generated a total return of about 10.3 % per year before inflation (and roughly 6-7 % in real terms).
Which Is Better for Long‑Term Investment, the Nasdaq‑100 or the S&P 500?
The Nasdaq‑100 is more growth‑ and tech‑heavy, which has produced superior long-term returns in the past, but also higher volatility and concentration risk. The S&P 500 is broader and historically less volatile. Investors seeking higher potential returns may favor the Nasdaq, but those prioritizing diversification often choose the S&P 500.
Which Market Indicator Is the Most Accurate?
No single indicator is foolproof, and any one indicator can produce bad signals from time to time. Combining trend (e.g., 200‑day SMA) with volatility (VIX) and momentum (RSI) improves signal reliability and helps filter out false positives.
The Bottom Line
The S&P 500’s breadth, liquidity, and long record of compounding still make it a foundational building block for diversified portfolios. While policy uncertainty and slowing growth have pushed the index slightly negative this year, history shows that disciplined, indicator‑informed investors who buy during pullbacks are often rewarded over multi‑year horizons. Monitor volume, trend, volatility, and momentum metrics together—and remember that time in the market usually beats timing the market.
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