The S&P 500 (^GSPC 1.33%) has soared 20% year to date due to excitement about artificial intelligence (AI), economic resilience, and interest rate cuts.
History says that momentum could persist in the remaining months of 2024. The fourth quarter has typically been the strongest quarter for the S&P 500, especially in years when the index achieved double-digit returns through the first three quarters (i.e., through September).
Since 1990, the S&P 500 has advanced at least 10% during the first three quarters of a dozen different years. In 11 of those 12 years, or 92% of the time, the S&P 500 also produced a positive return in Q4. Read on to learn more.
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Key Data Points
History says the S&P 500 could move higher in the fourth quarter
The S&P 500 measures the performance of 500 large companies that form the core of the U.S. economy. It is widely regarded as the single best benchmark for the domestic stock market due to its scope and diversity.
As mentioned, the S&P 500 has returned at least 10% during the first three quarters of 12 different years since 1990. The chart below provides details on the index's Q4 performance during those years.
|
Year |
Q3 YTD Return |
Q4 Return |
|---|---|---|
|
1991 |
17% |
8% |
|
1995 |
27% |
5% |
|
1996 |
12% |
8% |
|
1997 |
28% |
2% |
|
2003 |
13% |
12% |
|
2009 |
17% |
5% |
|
2012 |
15% |
(1%) |
|
2013 |
18% |
10% |
|
2017 |
13% |
6% |
|
2019 |
19% |
9% |
|
2021 |
15% |
11% |
|
2023 |
12% |
11% |
|
Median |
N/A |
8% |
Data source: YCharts. YTD: year to date.
The chart above contains two important pieces of information. First, since 1990, the S&P 500 has usually produced a positive return in the fourth quarter after notching a double-digit gain in the first three quarters. The only exception to that rule was 2012. That means this stock market indicator has been accurate 92% of the time.
Second, the S&P 500 has returned a median of 8% during Q4 following a double-digit gain in the first three quarters. That bodes well for investors because the S&P 500 is currently up 20% year to date, and Q3 ends in less than a week. Barring some unforeseen catastrophe, the index should still be up at least 10% year to date on Sept. 30. In that scenario, history says the index would return 8% in the remaining months of 2024.
Having said that, no stock market indicator is perfect, and past performance is never a guarantee of future results. Moreover, investors should never put money into the stock market with the expectation of short-term gains.
History says the S&P 500 is headed higher in the long run
There is no guarantee the S&P 500 will move higher before 2025. The index trades at 21.4 times forward earnings, a premium to the five-year average of 19.5 times forward earnings and the 10-year average of 18 times forward earnings. So, many stocks are expensive from a historical perspective, meaning bad news concerning the economy or corporate earnings could trigger a decline.
The S&P 500 currently trades at 5,720, but several Wall Street analysts expect the index to move lower by the end of 2024. The most bearish forecast comes from JPMorgan Chase, where analysts have set the index with a year-end target of 4,200. That implies nearly 27% downside in the remaining months of 2024. Comparatively, the median year-end target among analysts at 14 investment banks is 5,600, which implies 2% downside in the remaining months of 2024.
Regardless of which direction the stock market moves in the near term, investors can confidently assume the S&P 500 is headed higher in the long run. The index returned 664% during the last 20 years, which equates to 10.6% annually That period encompasses such a broad range of economic and market conditions that similar results are likely over the next 20 years. So, the most prudent course of action for investors is to buy quality stocks at reasonable prices and hold those stocks for as long as the underlying companies remain solid.
