The robust performance of the US stock market in 2023, with a gain of over 24 per cent, may propel equities in the coming year, according to historical trends. Analysts, citing factors such as momentum and strong fundamentals, anticipate continued gains in 2024. The S&P 500’s 11 per cent surge in the fourth quarter of 2023 is seen as a potential indicator of strength in the new year.
Data from LPL Research since 1950 reveals that years following a 20 per cent or more gain typically see the S&P 500 rise by an average of 10 per cent, outperforming the average annual return of 9.3 per cent. Such years also exhibit a higher likelihood of positive outcomes, with the market ending the year positively 80 per cent of the time, compared to the overall average of 73 per cent.
Adam Turnquist, Chief Technical Strategist, LPL Financial, emphasises the enduring nature of trends that drive the market up by at least 20 per cent, contributing to sustained positive performance. LPL Research sets a 2024 year-end target range for the S&P 500 at 4,850 to 4,950, with potential upside surpassing 5,000 if certain conditions, such as lower interest rates and robust earnings growth, are met.
Ryan Detrick, Chief Market Strategist, Carson Group, points to historical instances where strong gains followed rebounds from significant market declines. After six instances since 1950 when the S&P 500 rebounded by at least 10 per cent following a 10 per cent or more decline the previous year, the index’s bounce continued for a second year, yielding an average return of 11.7 per cent.
Reaching a record high is considered another positive signal for stocks. Data from Ed Clissold, Chief US Strategist, Ned Davis Research, indicates that in 14 instances since 1928 with at least a one-year gap between S&P 500 all-time highs, the index rose by an average of 14 per cent in the year following a new high.
Despite these positive indicators, the market faces tests, including the upcoming release of fourth-quarter results by US companies and the Federal Reserve’s January meeting, which will provide insight into potential rate cuts for 2024. Concerns about economic instability or unexpected inflation could impact the optimistic outlook.
Sam Stovall, Chief Investment Strategist, CFRA, acknowledges history as a guide but emphasises the need for caution. Stovall’s analysis of data, including historical trends in presidential election years, supports a positive outlook for 2024. The S&P 500 has gained in all 14 instances when a president sought re-election, regardless of the winner, with an average total return of 15.5 per cent. Stovall concludes that various indicators point towards a positive year ahead.
In summary, the US stock market’s strong performance in 2023 has set the stage for a bullish 2024, as historical trends suggest continued gains. Analysts highlight factors such as momentum and strong fundamentals as contributing to the positive outlook. Data from LPL Research indicates that years following a 20 per cent or more gain typically see the S&P 500 rise by an average of 10 per cent. The market’s rebound from significant declines and reaching record highs also bode well for future performance. However, potential challenges, such as fourth-quarter results and the Federal Reserve’s decisions on interest rates, could impact the market’s trajectory. Despite these concerns, experts remain cautiously optimistic, drawing on historical data and trends in presidential election years to support a positive outlook for 2024.
