The S&P 500 is willing to do something that has only been done 3 times ever. Here's what history says it could mean for stocks in 2024.

Investors should enjoy particularly happy holidays this year. Barring a stunning collapse in late December, the stock market will post huge gains in 2023.

The big question now is: Can the momentum continue into the new year? For those who look to the past to try to understand what might happen in the future, there may be an interesting answer to this question. the Standard & Poor's 500 Ready to do something that has only been done three times never. Here's what history says it could mean for stocks in 2024.

A rare event for the S&P 500

Standard Statics, which later merged with Poor's Publishing to form Standard & Poor's (now Standard & Poor's Global (Sabji 0.50%)), first created a stock market index for US companies in the 1920s. However, the S&P 500 in its current form comprising 500 companies dates back to 1957.

During its 66-year history, the S&P 500 has delivered positive annual gains nearly 70% of the time. Down years are not unusual, but positive years are more common. What He is However, it is rare for the S&P 500 to see a huge decline one year followed by huge gains the next.

From 1957 to 2022, the S&P 500 fell by 15% or more five times. The index rebounded by 15% or more in the following year only three times. The most recent example of this was in 2008 and 2009 with the stock market crash and subsequent comeback. Now, it seems that this rare event is about to happen again. The S&P is down 19% in 2022 but is set to finish 2023 up more than 20%.

Even if we look at indices that were predecessors to the modern S&P 500, such sharp declines followed by large bounces are rare. There have only been five previous times since the 1920s when the S&P 500 and its predecessors fell 15% or more, then rose 15% or more the following year.

Historical precedents

Was the S&P 500 like a yo-yo in the past, going down, then up, then down again? no. Let's take a look at how the index performed in the year following the big rebound.

In 2008, the S&P 500 fell more than 38% as markets were turmoil due to the financial crisis. The following year, it rebounded by more than 23%. This momentum continued, albeit at a moderate pace, in 2010, as the S&P rose approximately 13%.

^ SPX Data by YCharts

It was a similar story in the early 2000s. The S&P 500 fell 23% in 2002 in the wake of the bursting of the dot-com bubble. In 2003, the index rose again, with a jump of 26%. The S&P rose further in 2004, but with smaller gains of about 9%.

^ SPX Data by YCharts

The same pattern appeared during the 1970s. In 1974, the S&P 500 fell nearly 30%. It rebounded nearly 32% the following year. The index then rose another 19% in 1976 – a strong but smaller gain.

If history is a guide, we could see the same thing happening in 2024. The S&P 500 could continue its positive momentum into the new year but deliver a performance that is not as impressive as 2023's.

Will stocks really jump again in 2024?

Unfortunately, there is no guarantee that history will repeat itself. From a statistical point of view, trends from the past are almost meaningless due to the low sample size.

To be sure, some Wall Street analysts believe the S&P 500 will rise, but at a more modest rate, next year. For example, American bank (Pac 0.69%) Analysts set a target price for the index at 5,000 points, reflecting an increase of about 6% from its current level. Goldman Sachs (P 0.02%) It expects the S&P 500 to hit 5,100 next year, an increase of about 8%. No one knows for sure what the stock market will do over the next year.

The good news is that long-term investors don't have to worry about that. Over a long period, the S&P 500 almost always rises. As Warren Buffett once noted: “On the whole, American business has performed admirably over time, and will continue to do so (albeit, of course, in unpredictable, intermittent periods).” Whatever happens in 2024, the long-term outlook for the stock market should be bright.