He S&P 500 (SNPINDEX: ^GSPC) is having a spectacular year. It is up 22.8% so far, including dividends, marking a sharp turnaround from 2022, when it sank into bear market territory.
In fact, the S&P 500 has only posted an annual loss 15 times since its inception in 1957. On nine of those occasions, the index immediately recovered the following year with a profit, much like it did in 2023.
I dug into the data to find out what typically happens next in situations like this, and you'll probably be pretty pleased with what I found.
History isn't the only reason 2024 could be a big year for the S&P 500
The height of the pandemic seems like a lifetime ago, but the avalanche of stimulus dollars from the US government, combined with a record low Interest ratesfueled the rise in inflation that crashed the stock market in 2022.
In June of last year, the Consumer's price index (CPI) hit a 40-year high of 9.1% annualized, prompting the US Federal Reserve to raise interest rates at the fastest pace in its history. In just 18 months, the federal funds rate it soared from 0.25% to 5.50%, pulling investors out of stocks and into risk-free assets like cash and treasuries.
Investors rightly expected the pace of interest rate hikes to slow in 2023, hence the interest rate spike. S&P 500. Attention has even focused on interest rates. cuts recently, and experts predict the Federal Reserve could cut the benchmark rate five times in 2024. That alone could fuel a strong rally in the stock market next year.
But let's go back to the historical data I mentioned at the beginning. Years of rebound like 2023 have done always Another positive year has followed, which bodes very well for 2024.
Furthermore, the average gain based on nine cases dating back to 1957 is 15.1%. That suggests 2024 won't be as strong as 2023, but the historical data doesn't take into account potential rate cuts, which could lead to higher returns.
What stocks should investors buy to prepare for 2024?
First, it is important to note that past performance does not guarantee future results. Historical data alone is not enough to cement the stock market's next move; Otherwise we would all be very rich.
That said, certain stocks will clearly benefit from a drop in interest rates next year. Real estate brokerage giant red fin is one of them, especially if the real estate market gains strength.
Further, artificial intelligence (AI) stocks are coming off a banner year and will likely have strong momentum through 2024. AI can significantly increase business productivity and has the potential to transform the economy in the long term.
NVIDIA It will probably continue to do just fine as it can barely keep up with demand for its AI data center chips. Similarly, microsoft Earlier this year it bet $10 billion on ChatGPT developer OpenAI, one of the leading startups in the AI โโindustry.
Palo Alto Networks It is also seeing a surge in demand for its cybersecurity software, which is increasingly powered by AI.
For risk-averse investors, buy shares of Warren Buffett's holding company, Berkshire Hathawayis usually a safe bet given that it has doubled the performance of the S&P 500 every year (on average) since 1965.
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Antonio DiPizio has no position in any of the stocks mentioned. The Motley Fool ranks and recommends Berkshire Hathaway, Microsoft, Nvidia, Palo Alto Networks, and Redfin. The Motley Fool recommends the following options: Short February 2024 calls for $8 on Redfin. The Motley Fool has a disclosure policy.
The S&P 500 is about to do something it has only done nine times before. History says the stock market will do this next was originally published by The Motley Fool
