The S&P 500 Just Had 1 of Its Best Months in History. Here's What the Stock Market Usually Does Next

The S&P 500 (^GSPC 1.02%) tracks 500 large U.S. companies that span every stock market sector, covering about 80% of domestic equities by value. As a result, the index is commonly used as a barometer for the entire U.S. stock market, though the Dow Jones Industrial Average (^DJI 0.40%) and the Nasdaq Composite (^IXIC 2.02%) are also widely followed benchmarks.

The S&P 500 posted three consecutive monthly declines in August, September, and October, something it last did following the onset of the COVID-19 pandemic in 2020. Those losses came in response to stubborn inflation, soaring bond yields, geopolitical tensions, and projections from the Federal Reserve pointing toward a prolonged period of elevated interest rates.

However, the S&P 500 rebounded 8.9% in November, one of its 20 best monthly performances in history, as investors reacted to better-than-expected earnings and encouraging economic data. Specifically, reports showed that inflation and the labor market continued to cool in October, fueling hopes that the Federal Reserve may be done raising interest rates. That leaves the door open for rate cuts next year, which would likely act as an accelerant on the economy.

With that in mind, stock market momentum often builds on itself, and the S&P 500's historic November run hints at more gains on the horizon.

History says the S&P 500 could increase 13% during the next 12 months

November's move higher was not isolated to any particular week, but rather spread evenly throughout the month. In fact, all three major U.S. financial indexes -- the broad-based S&P 500, the blue chip Dow Jones Industrial Average, and the technology-heavy Nasdaq Composite -- have now strung together five consecutive weekly gains. That points to widely held bullish sentiment.

In any case, massive one-month increases in the S&P 500 are often followed by more upward momentum over the next year. The table below shows how the index fared following its 20 best months in history. Readers should note that November 2023 has been excluded from the list because a full year has not passed, but it would rank 18th had it been included.

Data source: Carson Group.

As shown above, the S&P 500 returned an average of 13.3% during the 12-month period following its 20 best months in history. The index has traded sideways in December thus far, so the implied upside over the next year is still 13.3%, assuming returns align precisely with the historical average.

Of course, past performance is never a promise of future results. But investors have another reason to believe the S&P 500 could move higher in 2024.

Wall Street says the S&P 500 could rise 11% during the next 12 months

Wall Street expects top- and bottom-line growth to accelerate across the S&P 500 next year. The consensus forecast calls for a 2.3% increase in revenue and a 0.8% uptick in earnings in 2023, improving to 5.4% and 11.7% growth, respectively, in 2024. Strong financial results could certainly move the S&P 500 higher next year.

Judging by their price targets, Wall Street strategists see that as a probable outcome. Specifically, the median price target on every stock in the index can be blended into a single estimate. That bottom-up methodology gives the S&P 500 a 12-month price target of 5,059, implying nearly 11% upside from its current level.

Patient investors have historically been well rewarded

To be clear, no forecasting tool is perfect, and Wall Street strategists cannot know the future. Whether the stock market moves up or down over the next year depends on a great many variables -- everything from economic growth and corporate earnings to monetary policy and geopolitical affairs. But investors can count on one thing: The stock market will move higher over time.

Over the past decade, the S&P 500 returned 208% (11.9% annually), the Dow Jones gained 186% (11.1% annually), and the Nasdaq Composite returned 289% (14.5% annually). Stocks may perform a bit more modestly over the next decade, but history makes it clear that patient investors are well rewarded. In that context, now is a good time to buy stocks regardless of what the market does in the next year.