This High Yield Indicator Is Predicting A 100% Probability Of A Stock Market Spike

The S&P 500 has started off the month of May with a scary 1.9 percent selloff, but the credit markets are looking much more bullish. According to Fundstrat analyst Thomas Lee, the credit market is predicting that the S&P 500 may be in for a major bounce in coming months.

“High-yield has rallied 13 percent since mid-Feb, a 2.5 std rally while stocks gained but less—there are 184 prior instances of this since 1984—there was remarkably strong equity performance in [the] next six and 12-months, with stocks gaining 11 percent/15 percent, respectively (96 percent/100 percent win-ratio,” Lee explained.

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In other words, there have been nearly 200 instances of high-yield out-performance coupled with relative stock market underperformance over a 50-day period since 1984; 100 percent of those times, the stock market delivered gains in the six months that followed. From a historical perspective, investors can anticipate around an 11 percent gain for the S&P 500 in the next six months and a 15 percent gain over the next year.

Lee admits that global economic data have been mixed lately, but Fundstrat believes the S&P 500 has several tailwinds in place, including a weakening U.S. dollar, rising oil prices and easing credit conditions.

In the past 50 days, the SPDR S&P 500 ETF Trust SPY is flat, while the SPDR Barclays Capital High Yield Bnd ETF JNK is up 0.3 percent.

Disclosure: The author holds no position in the stocks mentioned.