"There is no better teacher than history to determine the future."
--Charlie Munger
The late, great Charlie Munger, who died last month at age 99, knew a thing or two about history. Throughout his life, he lived through the Great Depression, World War II, and more than a dozen American recessions. And that's just his own firsthand experience. As any history buff can tell you, when studying history, those in the present learn from those in the past, and that gives him an advantage, especially when he invests.
With that in mind, let's examine some recent stock market history and what it could mean for 2024.
Image source: Getty Images.
Last month was one of the best Novembers on record for the S&P 500
With less than a month left until 2023, the stock market is on track for a banner year. He S&P 500, Nasdaq Compositeand Dow Jones Industrial Average have increased by 19%, 36% and 9%, respectively. In part, that's due to stellar returns in November.
Take as an example the S&P 500, the benchmark. It achieved a gain of 8.9% in November. This is only the fifth time the index has gained more than 8% in November, since 1954.
|
Year |
November return |
|---|---|
|
1954 |
8.1% |
|
1962 |
10.2% |
|
1980 |
10.2% |
|
2020 |
10.8% |
|
2023 |
8.9% |
Data source: Ycharts.
Each of the previous four Novembers (1954, 1962, 1980 and 2020) followed unique circumstances and events, ranging from the aftermath of the Cuban Missile Crisis in 1962 to the elections of Ronald Reagan in 1980 and Joe Biden in 2020. However, in all but one calendar year after these Novembers, the S&P 500 posted a double-digit increase.
In fact, in three of the four years (1955, 1963, and 2021), the S&P 500 gained 18% or more, with an average return of 24%.
|
Year |
November S&P 500 Performance |
Next year |
Annual return of the S&P 500 |
|---|---|---|---|
|
1954 |
8.1% |
1955 |
26.4% |
|
1962 |
10.2% |
1963 |
19.7% |
|
1980 |
10.2% |
1981 |
-9.7% |
|
2020 |
10.8% |
2021 |
26.9% |
|
2023 |
8.9% |
2024 |
not yet known |
Data source: Ycharts.
It is true that in 1981 the index fell 10%. And if you include that year, the average return in the following calendar year drops from a 24% gain to a 16% gain.
But it is worth remembering that 1981 was a historically bad year. Record inflation, sky-high interest rates and double-digit unemployment rates led to one of the worst recessions since the Great Depression. As a result, the stock market crashed.
In fact, 1981 was the only year in the entire 1980s that the S&P 500 recorded an annual decline. Additionally, 1981 holds the record for the worst year in the stock market between 1978 and 1999, over a 22-year span. In short, 1981 was an outlier.
What does this mean for 2024?
Admittedly, this pattern represents a very small sample size and investors should not rely solely on past performance when making investment decisions. Furthermore, every investor should diversify, dollar cost averageand maintain it in the long term. And in that sense, putting money in the stock market is a good idea, no matter the time.
So, in summary, last month was a record November, and if the trend continues, 2024 could turn out to be a banner year for stocks. However, the best strategy is to always aim for long-term gains through a diversified portfolio.
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Jake Lerch has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
The stock market just did something it has only done five times since 1954. Here's what it could mean for 2024. was originally published by The Motley Fool
