Sterling Savvy

Will the S&P 500 keep rising?

Will the S&P 500 keep rising

The S&P 500 is on a tear right now.

It’s a flagship index tracking the 500 biggest publicly traded companies on the US markets – and has risen by 22% over the past year. That’s despite ongoing concerns about inflation, and when the Federal Reserve will start to cut interest rates.

After smashing through the psychologically significant 5,000 threshold, the S&P 500 has already surpassed Goldman Sachs’ expectations for the whole of 2024. Analysts at the US investment bank had set a target of 4,700 points by the end of the year.

When equities are rising, it’s all too tempting to jump right in – hopeful of further returns. But will the S&P 500 keep smashing records, or are painful pullbacks to be expected?

What’s next?

Well, according to the Financial Times, historical analysis suggests double-digit returns could follow in the coming months now a new high watermark has been established. The record for the most all-time highs was 77 in 1995 – and so far in 2024, there have already been 10. 

There’s little doubt that enthusiasm for tech stocks, and investor intrigue surrounding artificial intelligence, are key factors here.

Meta stock surged when the Facebook owner unveiled plans to introduce dividends for the first time in its 20-year history.

Meanwhile, NVIDIA smashed records in January when its market cap swelled by $296 billion – the biggest increase in history.

But there are factors that make the current bull run a lot different from 30 years ago.

Of course, a big unknown right now surrounds whether or not the US economy will achieve an elusive “soft landing” – meaning the Fed will manage to bring inflation back down to the target level of 2% without triggering a recession.

Bank of America research suggests that 65% of investors now believe that this will be achieved.

Newly released figures also showed that US inflation stood at 3.1% in the year to January – falling by a lot less than what analysts had expected.

The market now believes there’s a negligible chance of a rate cut in March, while the prospect of a reduction in May has fallen from 50% to 30%. Given the S&P’s surge has been largely linked to hopes that the cost of borrowing will decline, this could cause pullbacks.

Crunching the numbers

Investing when markets are hot can feel incredibly risky. What if the S&P 500 is reaching the top? What if stocks fall, meaning it could be years before your savings bounce back in the next cycle? 

This is always a risk – and that is why financial planning experts recommend you only invest a portion of your net worth in equities. In addition, it shouldn’t be money you’ll need any time soon.

Data from Fidelity Investments suggests that annualised percentage returns on the S&P 500 are slightly lower after new records are set – but not by too much.

The average three-year return stands at 10.3% after an all-time high, compared with the wider average of 11.2%. On a five-year timeframe, it’s 9.7% and 11.2% respectively.

As the old saying goes, it’s time in the market that matters, not timing the market.

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Connor Sephton is a journalist based in London. Over his 10-year career, he’s worked as a reporter, editor, and newsreader for Metro, Sky News, and the BBC.

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