The S&P500 (SNPINDEX: ^GSPC) is the most followed stock market benchmark in the US and includes the country’s 500 largest companies. Thanks to its broad base of constituent companies, it is considered the most reliable gauge of the overall performance of the stock market.
The index has been firmly in rally mode since early last year, boosted by the artificial intelligence (AI) boom, an improving economy and – most recently – the Federal Reserve Bank’s decision to begin its long-awaited campaign of austerity . interest rate cuts. These factors represent a trifecta of factors driving the ongoing stock market rally.
In fact, the S&P 500 just generated its best January through September returns since 1997. History suggests there is more to come.
Strong momentum
The first three quarters of 2024 were lucrative for investors. History suggests that market gains are likely to continue.
We are currently in the throes of a bull market that began on October 12, 2022. While no two bull markets are the same, existing data helps provide some context. The average bull market lasts 1,866 days – or just over five years. The market bottomed out almost two years ago, suggesting the current bull still has room to run.
Furthermore, the S&P 500 is up about 59% since bottoming, compared to an average bull market gain of 180%. These data points seem to indicate that we are still in the terribly early stages of the current bull market.
There’s more. Through the first nine months of 2024, the S&P 500 is up about 21%. History suggests that the momentum that has kept this rally going will continue. The benchmark index has posted double-digit increases twelve times since 1990. In all but one case, the rally continued into the fourth quarter, delivering additional gains for investors.
|
Year |
YTD returns from September 30th |
Fourth quarter returns |
|---|---|---|
|
1991 |
17% |
7% |
|
1995 |
27% |
5% |
|
1996 |
12% |
8% |
|
1997 |
28% |
2% |
|
2003 |
13% |
9% |
|
2009 |
17% |
8% |
|
2012 |
15% |
(1%) |
|
2013 |
18% |
9% |
|
2017 |
13% |
6% |
|
2019 |
19% |
10% |
|
2021 |
15% |
9% |
|
2023 |
12% |
11% |
|
Average |
N/A |
7% |
Data from YCharts. YTD = Year-to-Date.
The data in the chart above is clear. During the 12 years in which the market generated double-digit growth in the first three quarters of the year, the S&P 500 has delivered positive fourth-quarter returns in 11 of those years.
While there are no guarantees, the data indicates that there is a 92% chance that the market will continue to recover during the fourth quarter, yielding an additional average gain of approximately 7%.
Does this mean that investors will enjoy positive returns in the fourth quarter? No one can say for sure, but given the available evidence, I like those odds.
The jury is still out
Where will the market be by the end of the year? The truth is, no one knows.
As recently as August, some on Wall Street were suggesting that the market had already peaked, that the AI ​​rally was losing momentum and that the S&P 500 would end the year at 5,600 – below its then level.
Now, just six weeks later, the Federal Reserve has begun its campaign of rate cuts, pushing the benchmark higher. The S&P is currently at 5,700 (at the time of writing) and continues to gain ground. Wall Street is refreshing its models, suggesting there is room for a rally.
Analysts at DataTrek Research believe the S&P 500 will reach 6,000 before the end of the year, which is roughly 5% higher than its current position. The analysts then suggested that the companies that make up the S&P 500 index will generate earnings per share growth of 15.2% in 2025, surpassing this year’s 10% growth. If this prediction proves correct, market returns could be even more robust next year.
Not to be outdone, BMO Capital Markets recently released Wall Street’s highest forecast, raising its year-end target for the S&P 500 to 6,100, suggesting the market could rise 7% from the current level.
To be clear, it doesn’t matter what the S&P 500 does in the coming weeks or months. What is Importantly, the stock market – if left to its own devices – will eventually rise higher, making it the largest and most consistent tool for generating and compounding wealth. Over the past fifty years, the market has returned an average of 10% per year, helping many long-term shareholders find financial security.
As such, investors should buy shares in the best companies they can find and hold on to.
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Danny Vena has no positions in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
The S&P 500 did this for the first time in 27 years. Here’s what history says happens next. was originally published by The Motley Fool
