The S&P 500 Just Hit a Record High. The Stock Market Usually Does This Next. | The Motley Fool

He S&P 500 (^GSPC 0.22%) It is commonly considered a benchmark for the broader US stock market. The index fell into bear market territory on January 3, 2022, dragged down by recession fears stemming from ferocious inflation and the expectation of aggressive interest rate increases. It fell as much as 25% before reaching the bottom of its cyclical low on October 12, 2022.

At that time, the S&P 500 began to rise again as investor sentiment changed in response to cooling inflation and other signs of economic resilience. In 2023, the excitement around artificial intelligence also contributed to the bullish momentum across the stock market.

The S&P 500 finally hit a new record high on January 19, 2024, the first time it had done so in more than two years. Upon crossing that threshold, the index officially entered bull market territory, and history suggests more substantial gains are on the horizon.

History Says The Stock Market Is Headed Much Higher

from the S&P 500 The index was created in March 1957 and has been around for 10 years. bull markets. The table below provides details about each event, including start date, maximum win, and duration. It also shows the average gain and duration at the bottom.

Source: Yardeni Research. Note: The number of days includes weekends and holidays. The S&P 500 returned an average of 184.1% during recent bull markets for an average of 1,964 days.

As shown above, the S&P 500 returned an average of 184.1% over the last 10 bull markets, and it saw those gains for an average of 1,964 days. For that data to make sense, we must first define the start date of the current bull market.

The most conservative definition says that two criteria must be met before the S&P 500 officially enters a new bull market: first, the index must rise 20% from its cyclical low, and second, it must reach a new all-time high. Once those conditions are met, investors know that a bull market is underway. But the start date of each new bull market is defined as the cyclical low point of the previous bull market. bear market.

Here's what that means: The S&P 500 last bottomed on October 12, 2022. That is now the official end date of the last bear market and the official start date of the new bull market. Since that day, the index has advanced 35% in about 470 days. That leaves an implied 149% increase over the next 1,494 days (about four years), provided the S&P 500 performs precisely in line with its historical average.

Investors should consider those figures as educated guesses. Past results are never a guarantee of future returns. Yes, the S&P 500 gained an average of 184.1% during previous bull markets, but those previous events included returns ranging from 48% to 582%. And bull markets of the past have lasted between two and 12 years.

History says the stock market will go up in the long run

Ultimately, stock market performance is a function of supply and demand, but countless buying and selling options influence those variables. These include macroeconomic factors such as inflation and interest rates, as well as microeconomic factors such as the financial performance of individual companies and the behavior of individual consumers.

It's impossible to consistently make accurate predictions on any of those variables, let alone all of them, so guessing how the S&P 500 will perform over a specific period is even more difficult. For that reason, rather than isolating individual time periods, investors should consider historical returns in all market environments. That strategy can provide better (though still not perfect) insights into what future market performance might be, simply because it incorporates more data.

With this in mind, the S&P 500 has returned an average of about 8.6% annually since March 1957. Some investors may argue that productivity increases driven by the arrival of personal computers, the Internet, and other technologies Innovative stocks have fundamentally changed the world (and the way the market values ​​stocks). In that context, it may be useful to analyze historical performance over a shorter time horizon. For example, the S&P 500 has returned an average of about 10.1% annually over the past three decades.

Looking ahead, it is reasonable to assume that the S&P 500 will compound at an annual rate of 8.6% to 10.1% over the long term. In that context, the present is always a good time for patient investors to buy Good actions in reasonable prices.