The S&P 500 Is On Track to Do This For the First Time This Century. Here's What History Says Happens Next.

The S&P 500 (^GSPC 0.41%) represents the 500 largest companies in the U.S. and is the most widely followed benchmark in the country. Because of the breadth of its constituent companies, investors consider it to be the most dependable measure of overall stock market performance.

The index has been on a tear since early last year, pushed higher by macroeconomic improvements, the broad adoption of artificial intelligence (AI), record corporate profits, and the Federal Reserve Bank’s decision to begin lowering interest rates. Each of these factors has contributed to the ongoing stock market rally.

The S&P 500 just delivered one of its best January through October performances in decades, and the evidence suggests its run will likely continue. In fact, if the gains continue, the widely followed index could deliver its best annual performance so far this century.

A strong run to close out the year

November has a long history of being one of the best months for Wall Street, according to Ryan Detrick, chief market strategist of Carson Group. November has generated positive stock market returns in 11 of the past 12 years, according to the data. In fact, looking back to 1950, November has generated better returns, on average, than any other month. That also holds true during election years, which tend to amplify the gains, according to the data.

That view is supported by Goldman Sachs global market analyst Scott Rubner, who said that Oct. 28 is the start of “the best trading period” for U.S. equities, citing data that goes back to 1928. The data suggests median returns for the S&P 500 of 5.2% through year-end. In election years, those gains increase to 6.25%. Going back to 1985, the median return for the Nasdaq 100 during the same period is 11.7%.

There’s even better news for investors. Detrick points out that we’re entering a particularly bullish time for the market. The S&P 500 tends to produce positive returns 79% of the time between November and April, generating gains of 7%, on average. However, when the market delivered double-digit returns between May and October — a bar it just cleared with ease — the index delivered 13% returns, on average, between November and April.

The market’s best performance so far this century was the 29.6% gains it delivered in 2013. If the market regains its momentum, it could potentially hit a new watermark for the 21st century. Gains of 20% so far this year, and a potential election year bump of more than 6%, would put the index with striking distance of this lofty achievement. Even if it doesn’t reach it, however, the data strongly suggests that investors who stay the course will likely be rewarded.

The bull continues to run

The ongoing rally is part of a bull market that kicked off on Oct. 12, 2022, crossing the two-year mark just weeks ago. Bull markets last, on average, 1,866 days — which works out to 62 months or a little over five years. Since the current rally just passed its two-year anniversary, history suggests it still has legs.

Additionally, since hitting its trough, the S&P 500 has generated gains of just 60% (as of this writing), whereas previous bull runs generated gains of 180% before giving up the ghost. Taken together, the data suggests it’s still very early days for the current bull market.

The outlook is unclear

The data strongly suggests the market will gain ground in the coming months, but the truth is more complex. The strong track record aside, we simply don’t know what comes next — despite what the data shows. It shouldn’t be surprising that the “experts” aren’t in agreement about the future.

A bullish take from analysts at DataTrek Research suggests the S&P 500 will hit 6,000 before year-end, which is roughly 5% higher than its current position. They suggest next year’s profit picture could be even rosier, with component companies generating earnings-per-share growth of 15.2% in 2025, beating this year’s 10% gains.

BMO Capital Markets is even more optimistic. It unveiled the most bullish forecast on Wall Street, raising its year-end target for the S&P 500 to 6,100, which suggests the market could jump more than 6% compared to Friday’s close.

Not everyone is bullish. Late last month, Goldman Sachs predicted that the S&P 500 will deliver returns of just 3% annually over the coming decade, though its most optimistic forecast tops out at about 7%.

DataTrek co-founder Nicholas Colas felt compelled to respond to the Debbie-downer prediction, suggesting that returns of just 3% annually “always have very specific catalysts which explain those subpar returns.” Examples of these types of Black Swan events include the Great Depression and the global financial crisis of 2008. “History shows that 3% returns or worse only come when something very, very bad has occurred,” Colas wrote. He went on to say that “it is very difficult to square their conclusion with almost a century of historical data.”

Data by YCharts.

These diverging opinions highlight the fact that we simply don’t know what the S&P 500 will do in the coming weeks or months. However, history is the great equalizer. It clearly shows that the stock market has risen 10% annually, on average, for more than five decades, minting financial independence for many investors along the way.

Given this clear and convincing data, investors should buy stocks in the best companies they can find and ride out the inevitable ups and downs that are part of the cost of admission.