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© Reuters. FILE PHOTO: Signage is seen at the New York Stock Exchange (NYSE) in Manhattan, New York City, U.S., November 11, 2022. REUTERS/Andrew Kelly/File Photo
By Lewis Krauskopf
New York (Reuters) – The U.S. stock market’s hefty gains in 2023 could provide a lift for equities next year, if history is any guide.
The ended the year on Friday with an annual gain of just over 24%. The benchmark index also stood near its first record closing high in about two years.
Market strategists who track historical trends say that such a strong annual performance for stocks has often carried over into the following year, a phenomenon they attribute to factors including momentum and solid fundamentals.
“What we continue to come back to is solid gains for next year,” said Adam Turnquist, chief technical strategist at LPL Financial (NASDAQ:). “Maybe we will have a little bit of short-term pain but the long-term gain is definitely there when we look at the data.”
Stocks built up a head of steam in 2023, with the S&P 500 up 11% in the fourth quarter alone. This could translate to strength in the new year.
Data from LPL Research going back to 1950 showed that years following a gain of 20% or more have seen the S&P 500 rise an average of 10%. That compares to an average 9.3% annual return. Such years are also more frequently positive, with the market ending the year up 80% of the time, versus 73% overall.
“Momentum begets momentum,” Turnquist said. “I also believe themes that are capable of driving a market up (at least) 20% are typically durable trends persisting beyond a calendar year.”
LPL Research has a 2024 year-end target range for the S&P 500 of 4,850 to 4,950, but the firm sees potential upside above 5,000 if lower interest rates support higher valuations, companies achieve double-digit earnings growth and the U.S. economy avoids recession. The index was last at 4,769.83.
Investor hopes for an economic soft landing will get an early test next Friday, with release of the monthly U.S. employment report.
Ryan Detrick, chief market strategist at Carson Group, notes that stocks have seen strong gains after rebounding from steep drawdowns. Since 1950, there have been six times when the S&P 500 rebounded by at least 10% after falling 10% or more the previous year. Each time the index’s bounce continued for a second year, returning an average of 11.7%, Detrick’s data showed. The S&P 500 tumbled over 19% in 2022.
Detrick noted the data as part of a recent commentary on why 2024 “should be a good one for the bulls.”
Reaching a record high could be another bullish sign for stocks. Since 1928, there have been 14 instances of a gap of at least one year between S&P 500 all-time highs, according to Ed Clissold,