Can stocks pull off a repeat performance in 2024?

Stocks ended 2023 in a flourish, defying market volatility, economic uncertainty, and recession worries to reel off nine consecutive weeks of positive returns and finish the year with a gain of nearly 26%. While most stock bears pointed to the narrow leadership profile of the market in 2023, when a handful of large tech stocks powered much of the rally, a notable shift occurred around the start of November. The turning point occurred as investors grew more confident that the Federal Reserve was done hiking rates for the current cycle.

At the start of November, the S&P 500® Index was up around 10% on a capitalization-weighted basis for the year to date, while the S&P 500 Equal Weight Index was slightly down for the year to date. After a confluence of positive economic reports affirmed the downward trajectory of inflation, market performance began to broaden, with the S&P 500 Equal Weight Index outperforming the cap-weighted index in the last two months of the year.

For stock investors, the year-end rally was the icing on the cake, especially after the dire market outcome of 2022. But as we enter a new year, many investors may wonder if stocks can sustain this momentum. The historical record offers some clues; since 1950, the S&P 500 has been positive in around 80% of the years following a 20% or more annual gain for the benchmark index, with a median return of 12.1%.

While history may not repeat in this manner in 2024, it may give investors reasons for optimism about the road ahead. Obstacles will undoubtedly appear, but many fundamental factors, such as moderating inflation, positive trends in corporate earnings, and a potential pivot to Fed rate cuts, are present to support the case for the stock market bulls.