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Stock market’s record-breaking streak this year may be a sign that investors need to turn cautious, according to strategists at Ned Davis Research.
A trader works during the Fed rate announcement on the floor at the New York Stock Exchange (NYSE) in New York, US, March 20, 2019.
In a note on Monday, the research firm pointed to the S&P 500’s record-breaking run so far in 2024, with the benchmark index notching 54 all-time closing highs since January.
Investors in 2024 have been riding the tailwinds of Fed rate cuts, enthusiasm for artificial intelligence, and the promise of Trump’s pro-market policies, like tax cuts and deregulation.
However, historically, a year filled with fresh records has led to stocks doing poorly the following year, strategists said, weighing on the outlook for 2025.
Since 1928, in years when the S&P 500 has hit more than 35 record highs, the median gain for the benchmark index was just 5,8 percent the following year, below the long-running average of 8 percent, the firm said.
In years when the S&P 500 hit at least 50 record highs, the median return for the benchmark index was -6 percent the following year.
Stocks haven’t always lost in that scenario, though.
In 1996, the S&P 500 returned 20 percent, despite notching 77 record highs in the prior year. However, the firm noted that those gains were largely fueled by the dot-com productivity boom, which boosted the economy and kept inflation low.
“The obvious challenge to momentum studies is that stocks do not go up forever,” strategists wrote. Perhaps AI will drive another productivity and profit boom that will keep inflation and Fed policy benign. History suggests that is the exception rather than the rule.” – Business Insider Africa
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