Stocks have continued their impressive run in 2024, building on the momentum of a stellar 2023. Year-to-date, the Dow has climbed 2.72%, the S&P 500 is up 7.28%, and the Nasdaq has gained 6.41%. These gains come on top of last year’s impressive performance of 13.7%, 24.2%, and 43.4%, respectively.
The outlook for this year remains bright for several reasons. Firstly, the 4-year Presidential cycle indicates that year 4 (2024) tends to be the second-best year, following only year 3 (2023), which was the best year. Additionally, after a strong earnings season, estimates for S&P 500 companies show promising growth, with Q1’24 expected to see earnings up 2.2% and sales up 3.5%, Q2’24 earnings up 8.6% and sales up 4.5%, and Q3’24 earnings up 6.9% and sales up 4.9%.
Furthermore, with inflation on the decline and interest rate cuts likely in the near future, the conditions are favorable for continued market growth.
Statistical trends also support the bullish outlook. Major indexes like the Dow, Nasdaq-100, and S&P have all surpassed their previous all-time highs, with the S&P recently closing above 5,000 for the first time ever. Historical data suggests that after a prolonged period without a new high, when one is finally reached, the market tends to be higher a year later, with an average return of nearly 15%.
Additionally, when the S&P has seen significant gains in a single month, like the 8.91% increase in November 2023, history shows that a year later, the index was higher in 90% of cases, with an average return of 15.8%.
The current bull market, which began recently, has historically led to significant gains. After the top 10 bear markets (using the Dow), the subsequent rallies have been remarkable, with stocks surging an average of 44.7% within a year and 66.3% by year 3. Following the Great Recession, the market gained 63.4% in year 1, 100.6% by year 3, and 153.6% by year 5.
Given that the Dow is only 16 months into its bull market, while the Nasdaq and S&P are even earlier in their respective bull markets, there is potential for further significant gains ahead.
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