The S&P500 (SNPINDEX: ^GSPC) is the most followed stock market index in the US and includes the country’s 500 largest companies. Because it covers a wide range of US companies, it is also considered by many to be the best overall benchmark and the most reliable gauge of overall stock market performance.
The legendary index has been in full rally mode since its low point in October 2022, driven higher by declining inflation, the rise of artificial intelligence (AI) and the Federal Reserve Bank’s long-awaited decision to begin its campaign of interest rate cuts. These factors have combined to create an environment ripe for a continued stock market rally.
The S&P 500 just posted its best January through September performance since 1997 and has now entered the third year of its current bull market run, something that hasn’t happened since 2011. If history is any indicator, the current rally still has a lot to offer. to continue.
A bull can run very far
Fresh off the worst bear market since 2009, investors are enjoying the good times — and they should be. History shows that bull markets have greater staying power and tend to last longer a lot of longer than their bearish counterparts.
According to data from Bespoke Investment Group, the average bull market since World War II has lasted about four and a half years. For context, that’s much longer than the average bear market, which lasts about a year.
That said, not all bull markets are created equal. For example, the bull market that started in 1987 lasted more than twelve years, while the bull market that started in 2009 lasted eleven years. At the other end of the spectrum, the bull market that started in 2001 lasted just three months.
The current rally has just completed its second full year, so – if history is true – this bull market still has a long way to go. Of the thirteen bull markets that have occurred in the past 77 years, seven have lasted three years or more, so history is on the side of the bull markets.
Then there is the issue of returns. Bull markets have generated returns averaging 152%, which bodes well for current investors. However, market gains varied widely depending on the duration of the rally. For example, the bull market that started in 1987 generated a return of 582%, while the bull market that started in 2009 generated a return of 400%. However, the short-lived rally of 2001 – which lasted just three months – returned only 21%.
In general, the longer the bull market lasts, the greater the potential return. This also applies to the current run. Looking back at October 2022 – the start of the current market rally – the S&P 500 has returned 63%. If history is true, the current bull market has much more to offer.
Where do we go from here?
There are many opinions about the market and where we go from here. Goldman Sachs US equity strategist David Kostin just raised his year-end target for the S&P 500 to 6,000, while raising his 2025 target to 6,300. This suggests that the index, having already gained 22% this year, is about to rise another 3%. It also suggests that the S&P 500 will rise 5% in 2025.
While market forecasters will give their best guesses as to what will happen from this point, the truth is that no one knows for sure. If the economy continues to grow and business and consumer spending remain steady, the current bull market has a chance to join some of the longer bull markets in history.
However, things don’t always go as planned. Investors should be aware of the possibility of a “black swan” event, a random and seemingly unpredictable event that could have a huge impact on the financial landscape. Think of the 2008 financial crisis or the recent global pandemic. Many a bull market run has been derailed by a black swan.
Does this mean investors should hunker down and fear the worst? Far from it. Market legend Peter Lynch – one of the most successful investors of all time – said: “Far more money has been lost by investors preparing for corrections, or anticipating corrections, than has been lost in the corrections themselves.” This knowledge should help investors be mentally prepared for events that were impossible to foresee.
The biggest takeaway from this exercise is that time is the biggest advantage investors have. As the chart above shows, the stock market has generated robust returns over time despite market declines. Buying quality stocks and holding them for the long term is the best strategy to thrive in a bull market. Additionally, continuing to add to your portfolio at regular intervals (a process known as dollar-cost averaging) and sticking with it through both bull and bear markets helps develop the discipline needed to thrive no matter the circumstances.
The stock market has averaged a return of 10% per year over the past fifty years, illustrating the benefits of long-term investing.
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Danny Vena has no positions in any of the stocks mentioned. The Motley Fool holds positions in and recommends Goldman Sachs Group. The Motley Fool has a disclosure policy.
The S&P 500 did this for the first time in thirteen years. Here’s what history says happens next. was originally published by The Motley Fool
