S&P 500’s Remarkable Monthly Surge Signals Potential Upside

By Trevor Jennewine, The Motley Fool
Published: Thu, December 14, 2023, 12:06 PM GMT+2

The S&P 500, a key benchmark for the U.S. stock market, experienced one of its most impressive monthly performances in November 2023, soaring by 8.9%. This surge was driven by positive economic data regarding inflation and job markets, hinting at a potential shift in Federal Reserve policy.

Historical Perspective: This surge is noteworthy considering that, since 1950, monthly increases exceeding 8% have occurred only 30 times in the S&P 500’s history. Such occurrences have historically signaled a positive outlook for the market in the following 12 months.

Market Optimism: According to Carson Group, historical data suggests that there is a 90% chance of the S&P 500 moving higher over the next 12 months following such significant monthly increases. The average return during these periods has been around 15.8%, providing a positive backdrop for potential gains.

Market Resilience: Despite a recent bear market and unique challenges such as the aftermath of the pandemic, the S&P 500 rebounded sharply in November. The U.S. economy is recovering, albeit with unprecedented circumstances, and the market has historically responded positively during such recoveries.

Federal Reserve’s Influence: The Federal Reserve, which has been aggressively raising interest rates to combat inflation, signaled a potential shift. With indications that inflation may be cooling and signs of economic resilience, the Fed suggested no rate hikes for 2024, possibly leading to a rate cut. This move has historically been associated with a sharp rise in the S&P 500.

Historical Rate Hikes: Analysis from CME Group’s Fed Watch tool indicates a 100% chance that the Federal Reserve is done raising rates, with a 68% chance of rate cuts by at least 100 basis points in 2024. Historical data from JPMorgan Chase shows that the S&P 500 tends to rise significantly during the 12 months following the end of rate hike cycles.

Looking Forward: While historical trends suggest potential upside for the S&P 500, it’s essential to recognize the unique circumstances surrounding the current economic environment. Investors should consider economic conditions and sentiment for a comprehensive view. Regardless, the consistent wealth creation in the stock market remains a compelling reason to consider investing.

Disclaimer: Investors are encouraged to conduct thorough research and consider various factors before making investment decisions. Past performance does not guarantee future returns, especially in unique situations such as the present economic landscape.

Final Thoughts: The current market conditions, while showing historical parallels, also present distinctive challenges. Whether the S&P 500 moves higher or lower in the next 12 months hinges on broader economic factors and investor sentiment. However, historical trends indicate that patient investors have consistently seen wealth creation in the stock market, offering a positive outlook for potential investors.

Note: This analysis is for informational purposes only and does not constitute financial advice. Investors should seek professional guidance based on their individual circumstances.