The widely followed index hasn’t had a run like this since 1997.
The S&P 500 (^GSPC 0.90%) is the most widely followed benchmark of the stock market in the U.S., encompassing the 500 largest companies in the country. Thanks to its broad base of component companies, it is considered to be the most reliable gauge of overall stock market performance.
The index has been firmly in rally mode since the start of last year, driven higher 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 interest rate cuts. These factors represent a trifecta of drivers to propel the ongoing stock market rally.
In fact, the S&P 500 just generated its best January-through-September returns since 1997. History suggests there’s more to come.
Image source: Getty Images.
Strong momentum
The first three quarters of 2024 have been lucrative for investors. History suggests the market gains will likely continue.
We’re currently in the throes of a bull market that began on Oct. 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 nearly two years ago, suggesting the current bull still has room to run.
Furthermore, since its low point, the S&P 500 has gained roughly 59%, compared to average bull market gains of 180%. These data points seem to suggest that we’re still in the very early stages of the current bull market run.
There’s more. During the first nine months of 2024, the S&P 500 has risen roughly 21%. History suggests that the momentum that has sustained this rally will continue. The benchmark index has delivered double-digit increases on 12 separate occasions since 1990. In all but one of those years, the rally continued into the fourth quarter, generating additional gains for investors.
|
Year |
YTD Returns as of Sept. 30 |
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 shown in the above chart is clear. For the 12 years in which the market generated double-digit growth during the first three quarters of the year, in 11 of those years, the S&P 500 has gone on to deliver positive returns in the fourth quarter.
While there are no guarantees, the data indicates there’s a 92% chance the market will continue to rally during the fourth quarter, producing an additional average gain of about 7%.
Does that mean the investors will enjoy positive returns during the fourth quarter? No one can say for sure, but given the available evidence, I like those odds.
The jury is still out
So where will the market be by the end of the year? The truth is nobody knows.
As recently as August, some on Wall Street were suggesting the market had already peaked, the AI rally was losing momentum, and the S&P 500 would close out the year at 5,600 — below its then-current level.
Now, just six weeks later, the Federal Reserve has begun its campaign of interest rate cuts, which spurred the benchmark higher. The S&P currently stands at 5,700 (as of this writing) and continues to gain ground. Wall Street is revamping its models, suggesting the rally has room to run.
Analysts at DataTrek Research believe the S&P 500 will hit 6,000 before the year is out, which is roughly 5% higher than its current position. The analysts went on to suggest the S&P 500 index’s component companies will generate earnings-per-share growth of 15.2% in 2025, outpacing this year’s 10% growth. If that forecast turns out to be accurate, next year’s market returns could be even more robust.
Not to be outdone, BMO Capital Markets recently released the highest forecast on Wall Street, increasing its year-end target for the S&P 500 to 6,100, which suggests the market could climb 7% from its current level.
To be clear, it doesn’t matter what the S&P 500 does in the coming weeks or months. What is important is that the stock market — if left to its own devices — will eventually move higher, making it the greatest and most consistent wealth-generating and compounding tool available. Indeed, the market has returned 10% annually, on average, over the past 50 years, helping many long-term shareholders find financial security.
As such, investors should buy stocks in the best companies they can find and hang on for the ride.
