As of October 27, the S&P 500 is up nearly 40% over the last year. The flagship index fund is closing in on its second consecutive year posting returns of 20% or greater.
This caps off a dramatic rebound after the index’s gut-wrenching 19.44% plunge in 2022 that rattled investors worldwide. But zooming out, the S&P 500 has still provided a 11.45% annualized returns over the last decade.
Delving deeper into the market’s meteoric surge surfaces a confluence of supportive tailwinds all hitting at once. The U.S. GDP grew at its fastest pace in over 40 years, topping 5%.
Still, even with GDP gains, a 40% rise is disproportionate with the red-hot bull run the index fund has seen over the last year. Wall Street has been on a stock buyback shopping spree this year, which may explain some of the disparity.
Meanwhile steady consumer spending and cooling inflation pushed corporate profits to their highest levels since the 1990s.
Over 80% of S&P 500 companies exceeded their Q4 earnings estimates, providing an extra enthusiasm boost.
The S&P 500’s 21.77% gain handily trounces its historical average annual return of 10.26% since 1957. The iconic index of America’s largest public companies has only posted four calendar years exceeding 20% gains in that entire period: 1958, 1975, 1995, and 1997.
Behind the scenes, one key accelerator powering 2024’s rally was the U.S. Federal Reserve pivoting to a far more dovish policy stance – halting its intense rate hikes from 2022 aimed at taming inflation. Lower interest rates ease financing pressures and borrowing costs for acquisitive, high-growth businesses.
The red-hot returns come with a price, however: The S&P 500 now sports its richest valuation multiple since the early 2000s dot-com bubble, at nearly 30 times trailing earnings.
Meanwhile, many economists still predict a recession looms as 2022’s cumulative, blunt Fed rate hikes flow through with lags to impact the real economy over the coming quarters.
Yet despite these looming risks, most prudent long-term investors again realize that market timing gambits rarely pay off. Adhering to disciplined, regular contributions into diversified portfolios have historically been a more reliable investment strategy.
Numerous studies confirm investors were realizing 7%+ annualized gains over decades-long periods while weathering recessions and selloffs along the way.
Patience and perspective remain paramount in these turbulent times.
The old investing adage rings true: Time in the market beats timing the market.
While volatility shakes more anxious retail investors, the data continues favoring those maintaining a measured, long-term view.
