In a stock market frenzy that has Wall Street analysts scratching their heads, the iconic S&P 500 index has just pulled off a feat so rare, it has only occurred 11 other times throughout its storied 67-year existence. The leading barometer of America’s stock market fortunes has skyrocketed an eye-popping 10.2% in the first quarter of 2024 alone.
This stellar performance marks the index’s best first-quarter showing since way back in 2019, leaving investors giddily hoping the relentless upward trajectory can be sustained. But the burning question on everyone’s mind is – what could possibly come next after such a dizzying start to the year?
A Perfect Storm of Bullish Catalysts
So what exactly has fueled this explosive first-quarter rally that has the stock market’s biggest players grinning from ear to ear? Buckle up, because the rundown is a perfect cocktail of upbeat economic signals and unbridled investor optimism.
For starters, Corporate America’s biggest titans blew away even Wall Street’s lofty expectations with their end-of-year earnings reports for 2023. From tech juggernauts to consumer staples, the companies that make up the S&P 500’s elite listing delivered more green in their bottom lines than analysts could have ever dreamed.
But the fun didn’t stop there, folks. The disruptive potential of artificial intelligence has basically become this year’s biggest capital-markets adrenaline shot. Investors have been scrambling to get a piece of the AI revolution, furiously piling into any stock even remotely tied to this cutting-edge space.
Perhaps most crucially though, a growing consensus has formed that the U.S. economy could be headed for a fabled “soft landing.” Translation: The Federal Reserve’s aggressive interest rate hikes and fiscal tightening may actually tame inflation without totally torpedoing economic growth. If that balancing act can be pulled off, it would be a best-case scenario after over a year of Fed policy whiplash.
Rarity Breeds Optimism (and Trepidation)
Make no mistake though, the S&P’s blistering start in 2024 is highly out of the ordinary. We’re talking an 11-time occurrence throughout the index’s decades-spanning lifetime. So pardon Wall Street if it gets a bit hot and bothered contemplating where stocks could be headed over the next 12 months.
History provides some optimistic guideposts at least. Looking back at those 11 previous instances when the S&P 500 logged a double-digit first-quarter burst, the following year has tended to continue delivering positive returns for the broader market.
The quantitative analysts at Carson Investment Research and YCharts crunched the numbers. On average, the S&P has tacked on an additional 7.5% price return over the ensuing 12 months after such auspicious beginnings. The median outcome rings in only slightly higher at 7.6%.
Doesn’t exactly sound like cause for euphoric celebration, you say? Fair point, but consider that those figures are just measuring price returns, excluding the extra juice from dividend payouts. Factor those in, and the S&P’s total annualized returns have compounded around 7.4% since its inception in the Eisenhower era.
So while a 7.5% to 7.6% gain wouldn’t be earth-shattering by any means, it would essentially just represent a market performance true to long-term historical averages. Of course, those dusty old disclaimers about past results never guaranteeing future outcomes still apply here.
A Bounty of Battered Sentiment
For every bullish signal flashing green though, there’s a bearish contrarian lurking to rain on the stock market’s euphoric parade. Plenty of the sharpest minds on Wall Street actually see the S&P 500’s stellar start to 2024 as a prime selling opportunity.
At the top of the bear case is an expected retrenchment in consumer spending as the costs of borrowing stay elevated. One of Morgan Stanley’s investment gurus, Lisa Shalett, recently highlighted how savings rates have been dwindling while interest payment obligations keep inflating for the average American household.
With consumers tapped out and debt loads expanding, the thinking goes that big-ticket discretionary purchases could be delayed en masse. That kind of pullback would quickly throttle economic growth considering consumer spending constitutes a gargantuan two-thirds of gross domestic product.
Compounding those recession risks is the harsh reality that many of those big-budget consumer outlays – homes, vehicles, tuition bills – require financing themselves. So if the Federal Reserve fails to ease off its interest rate throttling as quickly as anticipated, it could further choke off consumer demand.
Then there’s the matter of frothy valuations that just can’t seemto be contained, no matter how many bouts of volatility rattle investors. At present levels, the S&P 500 is trading at nearly 26 times earnings – a hefty premium to both its 5-year and 10-year averages.
Trim away some of that excess speculative froth, and you’re left with some pretty dire year-end targets from Wall Street’s biggest bear callers. JPMorgan’s house forecast calls for the S&P 500 to plunge all the way down to 4,200 before Santa comes to town, representing a brutal 19% decline from current heights.
Morgan Stanley’s Shalett and her crew expect a 14% haircut down to 4,500, while money center lender Wells Fargo sees benchmark finishing off 2024 at 4,625 – an 11% setback for the bulls. Even the consensus view sees the S&P giving up a chunk of its altitude to end this year at 5,061, a 3% comeuppance.
The Long Road to Lasting Riches
Amid the perpetual tug-of-war between raging bullish and bearish camps, the same timeless investing advice still rings truest: Stay patient and think long-term to let compounding work its magic over decades.
As the Oracle of Omaha himself once so eloquently quipped, “The stock market is a device transferring money from the impatient to the patient.” Wise words from Warren Buffett, underscoring that short-term blips are mere noise for those committed to an investment marathon, not a manic sprint.
That sober-minded mindset has clearly paid dividends for the stalwart buy-and-holders who have navigated all the volatility over the past 30 years. Despite numerous crushing bear markets and economic calamities littering that stretch, anyone steadfastly invested in the S&P 500 index has reaped a staggering 1,980% total return.
For those keeping score at home, that equates to an annualized compounded growth rate of 10.6% harvested year after year, regardless of temporary zigs and zags. Talk about the power of patience!
So while the S&P 500 hitting the rare air of double-digit first-quarter gains has instigated a flurry of speculation – both euphoric and apocalyptic – the data shows the wisest move is to tune out the cacophony of noise. For those with the fortitude to play the long game, lasting fortunes have their best chances to flourish.
