As of Dec. 1, the S&P 500 (^GSPC +0.19%) was up 16% this year. It's an impressive performance when you consider that it was up by more than 20% in each of the previous two years. Despite strong gains in recent years, the broad index has continued to rise in value, as market conditions remain strong.
But whether it can continue to rise will depend on whether the economy still looks to be in good shape. Investors often look to the relevant data to gauge how strong the economy is. And if there are concerns, that can result in a pullback in the overall market.
One particularly important date to circle is Dec. 10. Here's why that day could be very significant for the market and chart a path for the S&P 500 for the rest of the year.
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The next Fed meeting takes place on Dec. 10
The Federal Open Market Committee (FOMC) has eight meetings over the course of the year, and the last one for 2025 is set for Dec. 10. That's when investors will learn whether interest rates will come down. A rate cut would be good news for growth stocks and the market as a whole because it makes it less costly to borrow money, which is favorable for risky companies.
According to the FedWatch tool from the CME Group, a derivatives exchange, there's an 87% chance that the Fed will cut interest rates by 25 basis points at the next meeting, putting the federal funds rate within a range of 3.50% and 3.75%. With the market looking like it's expecting a rate cut (and is thus pricing it in), if there's a potential surprise and that doesn't happen, that could spook investors and result in a dip in the S&P 500. But what may be even more important than the actual decision itself is the overall outlook for the economy.
More data will provide a clearer chart of the economy's direction
When the interest rate decision comes out, investors will also gain insights into Jerome Powell's view of the economy in light of the data up to that point. What Powell, the Federal Reserve chairman, will say arguably has more weight in the market than just the individual rate decision. His outlook can give investors insight into how likely there will be more rate cuts on the horizon.
As more data comes out, including job numbers, that will affect Powell's assessment of what direction the economy is going in, which is why his outlook will be so important. If there are signs the economy isn't doing well, that could make investors hesitant about remaining in the market since they may anticipate a worse performance for the S&P 500 in the near future.
Ultimately, the bigger question ahead is what will happen to the Fed chair position in the future. President Donald Trump has been frustrated with Powell for not cutting interest rates faster and is likely going to replace him when Powell's term ends in May 2026.
What happens on Dec. 10 shouldn't affect long-term investors
The market responds to data and government policies, but they won't impact investors' returns over the long run. What matters is the long-term trajectory of the economy. As long as it continues to grow and businesses are doing well, the S&P 500 is likely to continue rising and generating strong returns in the process.
Economic data can be useful in the short term, but it's just a snapshot of how the country is doing at a certain point in time. Billionaire investor Warren Buffett doesn't concern himself with forecasts and expectations, saying, "Forecasts may tell you a great deal about the forecaster; they tell you nothing about the future."
A simple buy-and-hold strategy is the most effective one to consider, because while the market may move in the short term due to economic data and interest rate announcements, in the long run, the S&P 500 is still likely to rise in value. Historically, it has averaged an annual return of around 10%, because the market has been resilient over the long haul. As long as you remain invested for the long term, you don't need to worry too much about these short-term developments.
