The S&P 500 did something it had only done 10 times before. History says the stock market will do it next

the Standard & Poor’s 500 (^GSBC 0.59%) by 18% in 2023, but the gains have been far from linear. Instead, the stock market has been a rollercoaster of ups and downs as investor sentiment fluctuates in response to various signals.

The benchmark index rose in the first half of the year, rebounding from bear market lows amid signs of economic resilience, better-than-expected earnings, and enthusiasm surrounding artificial intelligence.

The S&P 500 then gave up some of those gains in the second half of the year, notching three straight monthly declines in August, September and October as recession fears resurfaced and investors chimed in with hawkish comments from the Fed — specifically, and likely… Interest rates may remain high for a longer period than previously expected.

However, since then, the rollercoaster has taken a sharp turn once again. Through November Friday, February 24, the S&P 500 had made four straight weekly increases due largely to a wave of encouraging economic data, including a lower inflation reading for October that could signal the end of the Fed’s interest rate hike campaign. Federal Reserve.

However, this upward momentum in the S&P 500 may be good news for investors. this is the reason.

History says the S&P 500 can go higher, and Wall Street agrees

Four-week winning streaks are relatively uncommon. In fact, the S&P 500 has only achieved this feat 10 other times in history, and those events are usually preceded by more upward momentum in the index. Specifically, the S&P 500 returned an average of 16.3% during the 12-month period that followed 10 consecutive four-week periods of gains, generating a positive return 80% of the time, according to the Carson Group.

In short, history says the S&P 500 could rise about 16% over the next year. But what makes the situation particularly interesting is that another forecasting tool points to a similar result.

As mentioned, inflation has slowed to the point that many investors believe the Fed will stop raising interest rates. Since 1984, the S&P 500 has returned an average of 17.6% during the 12-month period following the end of an interest rate hike cycle, and has returned positive 83% of the time, according to C. B. Morgan Chase.

For context, Fed officials last raised interest rates on July 26, and since then the S&P 500 has effectively traded sideways. In other words, this forecasting tool suggests the benchmark could rise about 18% by the end of July 2024, roughly in line with the 16% uptrend indicated by the recent four-week winning streak. But investors have another reason to celebrate.

Wall Street expects a significant acceleration in S&P 500 revenue and earnings growth in 2024, and that could send the stock market higher. In fact, optimism among Wall Street analysts can be distilled into a single number by mixing the average price target for each stock in the index. This bottom-up methodology gives the S&P 500 a target price of 5,030, implying a 10% upside from its current level, according to FactSet.

Where should investors put their money today?

Investors should keep in mind that no forecasting tool is perfect, and every situation is unique. To this end, it is impossible to predict stock market movements with absolute certainty, even when many forecasting tools converge on the same result. To quote the familiar phrase: Past performance is absolutely no guarantee of future results.

So, where should investors put their money? One option is an S&P 500 index fund. The index has essentially been a guaranteed source of making money over long periods of time. The table below shows how the odds of positive return in the S&P 500 have historically increased with longer holding periods.

Data source: Fisher Investments. Note: The S&P 500 returns data collected from 1926 to 2017.

Alternatively, investors willing to do some homework should consider buying individual stocks. As mentioned earlier, artificial intelligence (AI) has been a particularly hot topic, and is expected to create significant wealth in the coming years.

In fact, Cathie Wood’s Ark Invest believes AI could be “more influential than the Internet,” and Bill Gates says AI is just as important as the creation of microprocessors, the personal computer, and the mobile phone. These technologies have made many investors millionaires, and the AI ​​boom is likely to have a similar result.