Stocks surged to record highs last week, igniting a fire of optimism among investors. With quarterly earnings reports reinforcing this exuberance, discussions around potential rate cuts in November captured the spotlight, with an 84% probability for a 25-point cut. The Dow, S&P 500, and Nasdaq all experienced significant gains, with both the Dow and S&P 500 achieving unprecedented highs on Friday.
The question on everyone’s mind now is whether this burgeoning rally can maintain its vigor as we edge closer to the end of the year. Bolstered by impending interest rate cuts, encouraging macroeconomic data, and robust corporate earnings projections, the foundation for sustained growth appears robust. Let’s delve into three compelling reasons why this market surge might not only endure but potentially gain momentum heading into the close of the year.
1. Record-Highs in October Could Signal More Gains Ahead
The recent all-time highs in October for the S&P 500 historically bode well for future gains. Since 1950, when the index has hit a peak in October, it has typically continued to climb an average of 5% through year-end. Out of 20 comparable instances, the market saw a further ascent in 18 cases, with notable spikes like the 10.6% surge in 2021. Only in 1983 and 2007 did the index fail to deliver a fourth-quarter rally.
2. Strong Performance Early in the Year Boosts Year-End Odds
The S&P 500’s remarkable 35.2% gain over the past 12 months ranks among its most impressive streaks in history. When the index has surged over 20% in the first nine months, history indicates a tendency for even greater performance by year-end. This scenario has manifested nine times before (excluding 2024), with only two exceptions—1967 and 1987—when the market did not continue its upward trajectory.
3. Dow Jones and Nasdaq Also Point to a Strong Finish
The Dow Jones, with a year-to-date increase of over 10%, has historically paved the way for further gains in 22 out of 29 cases since 1950. Under these circumstances, the Dow typically adds approximately 5% in the final quarter. Similarly, the Nasdaq Composite’s 20% surge this year aligns with historical trends where the index tacked on an additional 6.6% in the last quarter, save for a few exceptions like the turbulent years of 1987 and 1997.
With all major indices showcasing robust trends and historical data favoring the bulls, the stock market appears primed for continued ascension as we near the conclusion of 2024. However, it’s essential to bear in mind that while past performance offers insights, it never guarantees future results.