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The S&P 500 just hit a new record high. History says this will happen next.

The S&P500 Table of contents (SNPINDEX: ^GSPC) rose to a record high earlier this year, cementing its presence in a bull market, but the index didn’t stop there. Since then, the price has continued to rise and recently reached a new record high. Investors are piling into stocks amid optimism about an improving economy and a stabilization of interest rates – including possible future rate cuts.

Solid earnings reports have also boosted sentiment. About 78% of S&P 500 companies that reported first-quarter earnings announced positive earnings per share surprises, according to FactSet data.

You’ll find winning stocks in many sectors, but the biggest drivers in the stock market this year are technology players, especially those in the fast-growing field of artificial intelligence (AI). They’ve led to gains in the S&P 500 and tech-heavy stocks Nasdaq.

Now, after the S&P’s recent performance, investors are wondering what will happen next. Will the index continue to rise, or have we reached the peak of the bull market? History has some answers for us.

An investor, standing in front of an electronic board with stock prices, looks at a telephone.

Image source: Getty Images.

A look back in time

Let’s take a walk back in time. The S&P 500’s recent bear markets occurred as follows:

  • January 2022 to October 2022

  • February 2020 to March 2020

  • October 2007 to March 2009

  • March 2000 to October 2002

After each bear market, the S&P 500 had to hit a new high to confirm that a bull market had actually begun and that the gains were not just a bear market rally. The chart below shows the index’s performance over that period and after that first record, and the S&P has generally reached new highs during the bull markets.

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^SPX chart^SPX chart

^SPX chart

Furthermore, market data shows that bull markets historically last longer than bear markets. In a study of the S&P 500 from 1926 through 2017, bull markets lasted an average of almost nine years, compared with less than two years for the average bear market, according to Raymond James & Associates, citing data from First Trust.

Taking all this into account, history tells us that the S&P 500 could now continue to rise and reach new all-time highs as this bull market progresses. At the same time, investor sentiment remains high, which should continue to boost stocks and indices. About 47% of investors are currently bullish on stocks, up from 25% at the end of last year, according to data from the American Association of Individual Investors. If history is correct, the gains are far from over.

Is history repeating itself?

The next big question is: what does this mean for you as an investor? First, it’s important to keep this in mind: while historical trends often repeat themselves, no one can guarantee that they will happen on every occasion. The market can do something unexpected at any time. That said, history has generally served as a useful guide over time.

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These days it’s reasonable to be optimistic about the bullish trends and get excited about the possibility of positive momentum in the future, but you don’t want to plan your investment strategy over a period of months around buying and selling to take advantage of them. You’re likely to make a much bigger profit if you identify companies today that trade at reasonable valuations and have solid prospects – and commit to them for years to come.

The current bullish environment can boost a company’s stock. However, if you’ve chosen a quality company, you’ll likely make even more profits by holding the stock for the long term rather than selling to lock in short-term gains.

Technology companies such as AI chip maker Nvidia or cloud computing giant Amazon offer good prospects today due to their solid profit figures and their presence in the growth area of, for example, AI. But you will also find promising companies in other areas, such as healthcare or the financial sector.

It is crucial that you build your portfolio based on your investment style, whether aggressive or cautious, regardless of the market environment at the time. Today’s market offers an opportunity to discover under-the-radar technology stocks that could come to your attention when markets favor growth. And a particular market environment can help you find bargains or identify a player that can add a spark of growth to your portfolio.

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At this point, following the S&P 500’s latest all-time high, history tells us there is reason to be optimistic that the index will reach new highs. But the best news is: no matter what happens, you will benefit if you find investment opportunities today and hold on to them for the long term.

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The S&P 500 just hit a new record high. History says this will happen next. was originally published by The Motley Fool

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