Wouldn't it be nice to know exactly what's going to happen in 2024 and make millions of dollars? No one does that, of course. But there have been historical patterns that give investors a clue as to what to expect from the stock market in the coming year, and that could inform your investing decisions right now.
Several things are happening in the market today. The bear market has faded, the S&P 500 gained more in percentages in 2023 than it shed in 2022 -- and so far, the economy has avoided a recession. Let's put that all together to see what it could mean for 2024.
The bull always outdoes the bear
Plenty of bear markets have existed throughout history, but they have been overwhelmingly shorter than bull markets. Over the past 50 years, there have been five bear markets, each with a duration of one month to just over two years. The current bear market started in early 2022, so we're nearing the two-year mark. The bull markets during this period have lasted from 2.5 years to almost 13 years, with three lasting over 10 years.
When bull markets return, they come back with a vengeance. If you haven't yet taken advantage of falling prices and low valuations, now's your best chance. If you lock them in before the bull market comes, the likelihood is that they'll grow for a long time.
The year after the rebound isn't as strong
The S&P 500 ended 2023 up about 25%, which is an incredible rebound from its losses in 2022 even though it's far from its highest annual gains. Historically, the second year after a losing year hasn't been as strong as the first year after. That's most of the time, but not always.
Image source: Getty Images.
If the market gains in 2024 but at lower rates than in 2023, that doesn't affect you adversely. There will always be better and worse years. The Federal Reserve has been incredibly successful so far in managing this challenging economy, getting inflation under control without precipitating a recession.
It's preparing to start cutting rates next year, which should stimulate the economy without leading to further inflation. Many retailers pushing through sagging sales this year should begin to recover in a stronger economy, leading to more confidence in the stock market.
Shoot for the long term
You may not see gains in 2024 that are as big as in 2023. But regardless of whether that happens, gains will compound long term, even if they're not linear. That's why no matter what the market is doing, one of the most important investing principles is to start early and keep adding funds. If you have a long enough time horizon to invest, even small gains can add up to huge results over decades of compounding.
But there are ways to make the market work better for you, even if the market is moving slowly or losing value. Most stocks don't move in line with the market, which is an umbrella term that takes averages into account. You can certainly pick stocks you think look likely to beat the market in both 2024 and the long term.
Heading into 2024, you might consider investing in growth stocks. Historically, growth stocks have performed well in bull markets. The Nasdaq-100 index has trounced the broader market this year, ending 2023 up 55% as it gets closer to bull territory. Investing in a growth-focused exchange-traded fund or growth stocks is a way to leverage market trends in your favor.
And keep in mind that the reverse is true as well. When the market feels pressure, investors often move their funds into safer value stocks, like they did in 2022. Overall, you want to invest in stocks likely to gain in value over many years and ignore the dips on the way up. But your portfolio should be a work in progress.
If you're reevaluating your portfolio at the end of the year to ensure it's working efficiently, you can consider how to use the market effectively to meet your goals this year and every year.
