The S&P 500 (^GSPC 0.59%) has seen an 18% increase in 2023, however, the stock market’s journey has been anything but smooth. Investor sentiment has fluctuated, resulting in a rollercoaster of ups and downs.
The benchmark index initially soared in the first half of the year, bouncing back from bear market lows driven by signs of economic strength, better-than-expected earnings, and excitement surrounding artificial intelligence.
Later in the year, the S&P 500 experienced a setback, with three consecutive monthly declines in August, September, and October due to renewed recession fears and cautious comments from the Federal Reserve about extended high interest rates.
But as of Friday, Nov. 24, the S&P 500 has surged once again with four weeks of consecutive gains, fueled by positive economic data, including lower October inflation that may indicate a pause in the Fed’s rate hikes.
Despite the market’s fluctuation, the recent upward momentum in the S&P 500 could be advantageous for investors. Here’s why.
History points to potential growth for S&P 500, backed by Wall Street
Four-week win streaks are rare events. The S&P 500 has achieved this feat only 10 other times in history, typically preceding further upward movement. Following the 10 previous four-week win streaks, the S&P 500 saw an average return of 16.3% over the next 12 months, with a positive return 80% of the time, according to Carson Group.
Moreover, a decrease in inflation has led many to believe that the Federal Reserve will cease raising interest rates. Since 1984, the S&P 500 has gained an average of 17.6% in the 12 months following the end of a rate hike cycle, with a positive return 83% of the time, as reported by JPMorgan Chase.
Considering the recent sideways trading post the Fed’s rate hike in July, this forecasting tool suggests the index could rise approximately 18% by the end of July 2024, aligning closely with the implied 16% increase from the recent four-week win streak. Additionally, Wall Street foresees a significant acceleration in S&P 500 revenue and earnings growth in 2024, with a price target of 5,030 based on median analyst targets, reflecting a 10% upward potential from current levels, according to FactSet.
Where should investors allocate their capital today?
It’s important to note that no forecasting tool guarantees accuracy, and each situation is unique. Thus, predicting stock market movements with absolute certainty remains impossible, even with multiple forecasting tools pointing to a specific outcome.
One option for investors is an S&P 500 index fund, which has historically been a profitable investment over extended periods. The table below illustrates the increasing likelihood of a positive return with longer holding periods.
|
Holding Period |
Odds of a Positive Return in the S&P 500 |
|---|---|
|
1 Year |
75% |
|
5 Years |
88% |
|
10 Years |
94% |
|
20 Years |
100% |
Data source: Fisher Investments.. Note: S&P 500 returns data collected from 1926 to 2017.
An alternative for more hands-on investors is to consider investing in individual stocks, particularly in areas like artificial intelligence (AI) that are expected to generate substantial wealth.
Cathie Wood’s Ark Invest believes AI could surpass the internet in impact, and Bill Gates views AI as fundamentally as important as historical technological developments that have created millionaire investors. The AI boom is anticipated to have a similar rewarding outcome.
JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Trevor Jennewine has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JPMorgan Chase. The Motley Fool has a disclosure policy.
