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History shows strong 2023 could keep US stocks on path for 2024 gains By Reuters

History shows strong 2023 could keep US stocks on path for 2024 gains By Reuters

© Reuters. FILE PHOTO: Signage is seen at the New York Stock Exchange (NYSE) in Manhattan, New York, U.S., November 11, 2022. REUTERS/Andrew Kelly/File Photo

By Lewis Krauskopf

NEW YORK (Reuters) – The U.S. stock market’s big gains in 2023 could give stocks a boost next year, if history is to be believed.

They ended the year Friday with an annual gain of just over 24%. The benchmark index also moved closer to its first closing record in about two years.

Market strategists who track historical trends say such strong annual performance for stocks has often carried over into the following year, a phenomenon they attribute to factors such as momentum and strong fundamentals.

“We continue to see solid gains for next year,” said Adam Turnquist, chief technical strategist at LPL Financial (NASDAQ:). “Maybe we’ll struggle a little bit in the short term, but the long-term gain is definitely there when we look at the data.”

Stocks have gained momentum in 2023, with the S&P 500 up 11% in the fourth quarter alone. This could translate into strength in the new year.

LPL Research data going back to 1950 showed that years following a gain of 20% or more saw the S&P 500 rise an average of 10%. This compares to an average annual return of 9.3%. These years are also more often positive, with the market ending the year up in 80% of cases, compared to 73% overall.

“Momentum breeds momentum,” Turnquist said. “I also believe that themes capable of driving a market up at least 20% are generally long-lasting trends that persist beyond a calendar year.”

LPL Research has a year-end 2024 target range for the S&P 500 of between 4,850 and 4,950, but the company sees upside potential above 5,000 if falling interest rates support higher valuations, whether companies achieve double-digit profit growth and whether the U.S. economy avoids recession. The index was last at 4,769.83.

Investors’ hopes for a soft landing for the economy will be tested next Friday, with the release of the monthly U.S. jobs report.

Ryan Detrick, chief market strategist at Carson Group, notes that stocks posted strong gains after rebounding from sharp declines. Since 1950, there have been six times when the S&P 500 index rebounded at least 10% after falling 10% or more the previous year. Each time the index rebound continued for a second year, with an average return of 11.7%, according to Detrick data. The S&P 500 has fallen more than 19% in 2022.

Detrick noted this data as part of a recent commentary explaining why 2024 “should be a good year for bulls.”

Hitting an all-time high could be another bullish sign for stocks. Since 1928, there have been 14 instances of a gap of at least a year between the S&P 500’s all-time highs, according to Ed Clissold, chief U.S. strategist at Ned Davis Research. The S&P 500 then rose an average of 14% annually after hitting a new high, rising 13 out of 14 times, according to Clissold.

More tests of market strength will come soon. U.S. companies will begin reporting fourth-quarter results in the coming weeks, with investors expecting a year of much stronger profit growth in 2024 after a modest 3.1% increase in profits in 2023, according to the latest LSEG estimates.

Investors are also awaiting the conclusion of the Fed’s first monetary policy meeting of the year in late January to see whether policymakers will maintain the accommodative pivot they announced in late December, forecasting a 75-point rate cut. base for 2024.

Indeed, signs that the economy is starting to falter after the Fed’s 525 basis point rate hikes since 2022 could dampen momentum in stocks. Likewise, accelerating inflation in 2024 could delay expected rate cuts, putting hopes of a soft landing in the market on hold.

“History is a great guide, but never the gospel, and I think we need to recognize that,” said Sam Stovall, chief investment strategist at CFRA.

However, the data Stovall reviewed foreshadows a strong 2024, including the history of presidential election years. The S&P 500 gained 14 times in the year a president sought re-election, regardless of who won, with an average total return of 15.5%, according to Stovall.

“Basically every indicator I look at points to a positive year,” Stovall said.

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