At the end of August last year, the S&P 500 was up 17%. Fast-forward to 2024, and the index is up nearly 19%. As they say in New Orleans, "Laissez les bons temps rouler" -- let the good times roll.
But will the good times keep rolling? How much higher will the S&P 500 go this year? Here's what history shows.
Image source: Getty Images.
Looking back
In 2023, the S&P 500 rose another 5.6% between Sept. 1 and Dec. 31 after a 17.4% gain in the first eight months of the year. Is that a typical performance historically? In short, yes -- at least in recent decades.
Going back to 1994, the average S&P 500 gain in the last four months of the year was 4.34%. However, this percentage is skewed somewhat by the huge market meltdown in the latter part of 2008 during what came to be known as the Great Recession. The median S&P 500 gain during the last four months was 6.51%.
What if we only look at years like 2024 when the S&P delivered positive gains in the first eight months? The numbers look even better. The average return of the index in the last four months of those years was 4.71%, while the median return was 7.2%.
Furthermore, strong momentum in the first eight months of the year has usually led to great gains in the last four months, too. The average S&P 500 gain in the final four months of the year when the index rose by a double-digit percentage in the first eight months was 8.61%. The median gain in the last four months in these years was 9.24%.
The presidential election year effect
You might have heard of the presidential election year effect. Data from Morningstar and Ibbotson Associates showed that the average S&P 500 return during U.S. presidential election years between 1928 and 2016 was 11.28%. The S&P 500 rose 16% in 2020 despite falling earlier in the year due to the COVID-19 pandemic.
How has the S&P 500 performed in the last four months of presidential election years? Not spectacular but not bad, at least if we look back over the last five decades or so.
The average gain for the index in the last four months of presidential election years since 1972 was only 1.85%. Keep in mind, though, that the bursting of the stock market bubble in late 2000 and the sell-off in late 2008 brought this average down. The median S&P 500 gain during the period was a more respectable 4.72%.
Why do presidential elections impact the stock market? One possibility is that the incumbent party does everything it can to prop up the economy to hold onto power. Another is that the challenger for the presidency usually tries to make the case that he or she will enact policies that are even better for the economy (which usually translates to good news for stocks).
The best answer
So how much higher will the S&P 500 go this year? The best answer is... no one knows for sure. If history is any guide, though, the index is more likely to continue rising than it is to fall in the final four months of 2024.
Smart investors will be more concerned about how the S&P 500 will perform over the next five years, 10 years, and beyond. Historically speaking, the outlook looks very good for the S&P over the long term.
