In a recent development that has captured the attention of investors and analysts alike, the S&P 500 symbolically flashed a "death cross" signal this past week, coinciding with a sell-off predominantly driven by concerns surrounding tariffs. This technical indicator has sparked a flurry of discussions on Wall Street, particularly given its reputation as a bearish signal.

However, Adam Turnquist, the chief technical strategist at LPL Financial, offers a contrarian viewpoint. In an interview with Business Insider, he expressed optimism, suggesting that history may not be as gloomy as the term "death cross" implies. In fact, Turnquist's analysis indicates that such signals have often preceded stock market gains.

The stock market has had a turbulent year thus far, with the S&P 500 experiencing a 10% decline year-to-date. Investors have grown increasingly anxious about the potential economic repercussions stemming from tariffs imposed by President Donald Trumps administration. These concerns intensified earlier this week when both the S&P 500 and the Nasdaq 100 indexes emitted a death cross signal, which is typically seen as a technical precursor to further downturns.

Despite the prevailing worries, Turnquist urges investors to remain calm. He references historical data that reveals a generally favorable trend following past occurrences of death cross signals in the stock market. Specifically, since 1950, the average forward returns for the S&P 500 at three, six, and twelve months following the appearance of a death cross have all been positive. In fact, all three of these time frames recorded a positive percentage rate exceeding 50%, with a notable 72% win rate observed twelve months after the signal manifested.

Turnquist does acknowledge that the death cross can indeed serve as a reliable indicator of impending losses, noting several instances in history where this signal has accurately predicted downturns. He cites examples from March 2022, early December 2018, December 2007, and October 2000, where the market experienced significant declines subsequent to death cross formations. "While death crosses indicate recent price action is losing momentum and can serve as a prescient warning sign for developing downside risk, as was the case in March '22, early December '18, December '07, and October '00, the name is not as ominous as it may sound," Turnquist stated.

In a more detailed analysis, Turnquist examined instances of death cross signals that occurred amidst what he refers to as "waterfall" declines in the market, akin to the substantial sell-off witnessed earlier this month. He observed a pattern: when a death cross forms during a pronounced market drop, the forward returns tend to be more favorable. "When you have a death cross with a pretty severe drawdown, you tend to get much better forward returns, meaning you've already priced in a lot of the damage," Turnquist explained.

He elaborated further, revealing that death crosses occurring within one month following a 15% drawdown in the S&P 500 have historically resulted in an impressive twelve-month forward average return of 16%, complemented by an astonishing win rate of 83%. Given that the S&P 500 recently experienced a decline of as much as 21% from its previous highs during the sell-off, Turnquist's linear regression analysis suggests that such a significant downturn could lead to a remarkable 32% return over the following twelve months.

While Turnquist cautions that these projections do not necessarily represent his official market call, the historical data implies that the stock market may be positioned for a substantial rebound, drawing on patterns observed following past death crosses.