The S&P 500 index has risen by over 10% since the beginning of the year, which is an excellent result, surpassing the historical average. This performance is notable because it indicates a strong market sentiment and robust economic activity. The S&P 500, which includes 500 of the largest publicly traded companies in the United States, serves as a key indicator of the overall health of the stock market and the economy.
A rise of over 10% not only reflects positive investor confidence but also suggests that companies within the index are performing well, generating higher revenues and profits. This surge is particularly significant because it exceeds the long-term historical average growth rate of the index, which underscores the exceptional nature of the current market conditions.
According to Stephen Suttmeier, an analyst at Bank of America, these gains represent the best first 100 days for the broad market index in an election year since 1928. This statement highlights the historical context of the current market performance. Election years often bring a level of uncertainty due to potential changes in policies and government leadership, which can affect market performance.
However, the S&P 500's exceptional performance during the first 100 days of this election year breaks the typical pattern observed over nearly a century. Suttmeier's analysis emphasizes that this year's market strength is unprecedented in the context of election years, which typically show more subdued or volatile market behavior due to political uncertainties.
Suttmeier highlights that when the S&P 500 rises by 10% or more within the first 100 days of any year, the index tends to end the year higher in 76% of cases. This statistic is significant for investors as it provides a historical basis for predicting future market performance. The implication is that a strong start to the year sets a positive momentum that often carries through to the end of the year.
This historical trend can be attributed to increased investor confidence and continued economic growth, which sustain the market's upward trajectory. Investors and analysts pay close attention to these early performance indicators to make informed decisions about their investment strategies for the rest of the year.
In such scenarios, the average return for the remainder of the year is 7.1%, with a higher median return of 9.3%. The analyst emphasizes that "success breeds success," suggesting that strong early performance often leads to further gains. This observation is rooted in behavioral finance, where positive market trends can create a feedback loop of increasing investor confidence and investment activity.
When the market performs well early in the year, it attracts more investors who do not want to miss out on potential gains, further driving up prices. This cumulative effect can result in sustained market growth throughout the year, as reflected in the average and median returns reported by Suttmeier.
The outlook is even more favorable in election years. Suttmeier notes that when the S&P 500 has a positive first 100 days in an election year, there is a 93% chance that the index will continue to rise for the rest of the year. In these cases, the average return is 10.1%, with a median return of 8.9%. This enhanced probability of continued growth in election years is particularly intriguing because it counters the common perception that election years are fraught with market volatility.
The high likelihood of continued gains can be attributed to various factors, including investor optimism about future economic policies and the resolution of political uncertainties as the election date approaches. The data provided by Suttmeier gives investors a compelling reason to remain bullish on the market during election years.
The S&P 500 typically experiences a summer rally. Historically, the period from June to August is the second strongest three-month period of the year for the index, with a 65% chance of growth and an average return of 3.2%. This seasonal pattern is well-documented and can be attributed to various factors, such as increased consumer spending during the summer months and the positive impact of corporate earnings reports released during this period. The summer rally reflects a period of renewed investor activity and optimism, often leading to notable market gains.
However, in presidential election years, the probability of a summer rally increases to 75%, with an average gain of 7.3%. This heightened probability in election years may be due to investors' increased clarity about future economic and political conditions, leading to greater market stability and growth during the summer months.
If 2024 follows this pattern, the S&P 500 could reach around 5650 points shortly before Labor Day, based on the closing value from May 23. This forecast underscores the potential for significant gains in the coming months, driven by historical patterns and the unique dynamics of an election year. The projection to reach 5650 points highlights the substantial upward potential of the index, suggesting that investors could see considerable returns if the market follows historical trends.
This potential is further bolstered by the positive early performance of the index, which sets a strong foundation for continued growth throughout the year. The projection serves as a guide for investors, indicating that maintaining or increasing their market exposure could be advantageous in 2024.
Given these optimistic projections, Suttmeier advises investors to consider a bullish stance. Historical data supports the idea that a strong start to the year, especially in an election year, often leads to further increases. This insight is particularly relevant for those looking to capitalize on seasonal trends and the unique characteristics of markets in an election year. A bullish stance involves investing with the expectation that the market will continue to rise, which could involve increasing equity exposure or focusing on growth-oriented investments. Suttmeier's advice is grounded in the analysis of historical performance, providing investors with a data-driven rationale for their investment decisions.
It is worth noting that Mike Wilson, the chief equity market analyst at Morgan Stanley, has revised his stance on the S&P 500, adopting a more optimistic outlook after his initial forecast for 2024 proved inaccurate. This shift in perspective from a prominent market analyst underscores the evolving nature of market predictions and the importance of adapting to new information. Wilson’s initial forecast of a decline to 4500 points by the end of the year has been adjusted based on recent market developments and performance trends, reflecting a more positive outlook.
Wilson now predicts that the index will rise to 5400 points by the second quarter of 2025, a significant adjustment from his earlier forecast of a decline to 4500 points by the end of this year. This new projection indicates a substantial upward revision, suggesting that Wilson has identified factors that could drive stronger market performance than previously anticipated. His revised forecast highlights the dynamic nature of market analysis and the need for investors to stay informed about changing market conditions and expert opinions. The new target of 5400 points by mid-2025 reflects an optimistic view of the market’s potential, encouraging investors to consider the opportunities for growth in the coming years.
28.05.2024
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