The market has been on fire since October 2023 with the S&P 500 moving 22% higher. And it hasn’t been just the magnificent 8. Small caps are ripping, healthcare and financials and industrials joined the party, and emerging markets ex. China have moved to new bull market highs, etc., etc. With the size of the gains in that short amount of time, it is natural to ask is it too late to add money to the stock market. Hasn’t the stock market gained too much?
One thing I think helps is stepping back, reviewing longer term charts. It’s a great day when a new month starts, and we get new monthly candlesticks; might just be a me thing. But back to this note, I don’t think we have to go back that far to help answer the question. The chart below shows returns of various indices over the last 2 years. In two years, the S&P 500 has gained 4%, the Dow Jones Industrial 6%, and even the mighty Nasdaq 100 is only up 8%. The equal weight S&P 500 is flat, and small caps are still down 10%. Investors who committed new capital to the markets in January 2022 are just now seeing very small gains. And we think these new all-time highs are just the beginning.
Performance from January 2022:
Source: Stockcharts.com, as of 2/8/2024
I went through this study on our Quarterly Investment call a few weeks ago. What happens on a forward basis when the S&P 500 first moves to a new All Time High (ATH) after a bear market? The numbers speak for themselves. New all-time highs have been followed by many, many more new all-time highs. On average forward 1-year returns are 13.7%, and the average total return until the next bear market starts is 84.5%.
Source: CW Advisors, 3Fourteen Research, as of 1/25/2024
Can corrections, pull backs in stocks happen right now? Of course. But if or when this were to occur, we would buy the dips. When we look back, I think the story for 2024 is lots of ATHs as investors accept that we have a decent economy, inflation is falling, and earnings and margins are moving higher.
Fun Fact: This weekend is the Super Bowl, and this has nothing whatsoever to do with the stock market. But I thought it was fun to learn that the S&P 500 has the best forward 1 year returns when the game is a complete blow out. So I’ll be rooting for one team to completely obliterate the other, and sit back and enjoy the commercials and half time show. Enjoy if you do watch!
Sean Dillon, CMT, CFTe
SVP, Investment Strategy
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