Now at around 5,100, the S&P 500 continues to set new records. Much of the credit for the jump is tied to the performance of Nvidia and other "Magnificent Seven" stocks. However, there's also no denying that investor optimism appears to be on the upswing. Some analysts believe there is even more upside and that the benchmark index could hit 6,000 in 2025 and climb to 6,500 by 2026.
However, analyst sentiment and economic projections can change quickly. A lot of the growth inevitably will depend on the outlook for interest rates. Heading into 2024, the markets rose on hopes of several rate cuts from the Federal Reserve, spread out over the year. But with inflation still a bit higher than targeted rates and the Federal Reserve saying it's not convinced that it's the right time to cut rates, investors are starting to wonder. They know that the big risk for the success of the market is that rate cuts don't happen at all this year.
"Higher for longer"
Three simple words -- higher for longer -- could derail the market's rally.
Saying that interest rates may be higher for longer is nothing new from the Fed. The problem is that the market has been acting as if it doesn't believe it. And that disconnect may be at least part of the reason why optimism remains high in the markets -- investors still expect multiple rate cuts. The hope is that, as interest rates come down, bonds and other safer investments become less attractive than the equity markets, and then, more money flows into stocks.
But given that the economy still looks to be a bit overheated (as measured by some metrics), there's the growing case that there may not be any rate cuts at all this year. Torsten Slok is a chief economist at Apollo Global Management. He asserted recently that, "The Fed will not cut rates this year, and rates are going to stay higher for longer."
Should investors care? Buffett doesn't
The overall market has looked solid this year, and it's tempting to keep thinking that no bubble has emerged. But there are some signs of it like Nvidia's stock price rising more than 270% in the past 12 months. If you're a long-term investor, you need to be prepared and comfortable with the real possibility there will be bumps along the way.
The market will inevitably slow down, but that doesn't mean you need to try and time it and sell before that happens. Timing the market is extremely difficult and often leads to investors missing out on gains. It has generally been a better strategy to remain invested.
There's no better proof of that than Warren Buffett's investing strategy, which involves staying invested in quality stocks for the long term. Buffett first invested in stocks in 1942, amid World War II. And he has remained invested in stocks for decades, during good and bad economic cycles. His views on economic forecasts can be summed up with one simple quote:
"You have all these economists with 160 IQs that spend their life studying it. Can you name me one super-wealthy economist that's ever made money out of securities? No."
Long-term investors likely shouldn't worry too much about forecasts or dips in the market, either.
Investing in a top ETF can help investors reduce their risk
The market has been hot this year, but that doesn't mean that every stock is overvalued and due for a decline. And if you're not sure what to invest in, a fund such as the Invesco QQQ Trust (QQQ 1.54%) can offer some diversification. It focuses on the Nasdaq's top 100 nonfinancial companies, giving investors exposure to some of the best growth stocks in the world. While Nvidia is included within that list, so too are other top tech stocks, including Meta Platforms, Apple, and Amazon.
By investing in an exchange-traded fund (ETF), investors can minimize their overall risk and exposure to a single stock. And historically, investing in growth has proven to be a great option. Over the past 10 years, the Invesco QQQ Trust ETF generated total returns (which include dividends) of more than 420%, which eclipses the S&P 500's total returns over that same time frame (229%).
Investors are better off staying invested
Whether you choose to load up on dividend stocks or add the Invesco QQQ Trust to your portfolio and focus on growth, there are many ways to still invest in the stock market today. Even if the S&P 500 does falter, that doesn't mean all stocks will fall and that all of them will be bad buys right now. Timing the market rarely works, and staying invested is often the sounder option for investors.
