In the aftermath of a tumultuous 2022, the financial landscape was riddled with uncertainty. Stocks and bonds had taken a significant hit, and the consensus was that 2023 would continue this downward trend. However, the market, ever the contrarian, defied expectations and instead, stocks took flight.
By the end of the year, the market had surged by 26%. A substantial portion of these gains were realized in the final months of the year, with a broad rally commencing in late October. This momentum suggests that we could be in for further gains in the coming year.
Indeed, historical data indicates that the market could potentially rally by over 20% in 2024. While a year of 20%-plus market gains may seem like an anomaly, it’s actually more frequent than one might assume.
Excluding dividends, the market has recorded annual gains of over 20% on 21 occasions since 1950. This means that such gains occur more than a quarter of the time. Interestingly, these gains occur more frequently than losses. Since 1950, stocks have only fallen in 20 calendar years. When dividends are factored in, this number is even lower.
Given this context, a gain of 20% or more this year is not as far-fetched as it may initially appear, especially when considering the rally that concluded 2023. After hitting a low in late October, stocks rallied by 16.1% over the subsequent seven weeks. This represents the highest seven-week return since the recovery from the pandemic lows in 2020.
Many would interpret this rally as a sign that the market has overheated and that a slowdown is imminent. However, an analysis of every seven-week rally of 14% or more since 1950, of which there have only been 33, reveals that stocks continued to soar in almost every instance.
Historically, stocks have proven to be a reliable means of building wealth over the long term. Since 1950, the market has returned 7.9% per year. However, purchasing after setups like the one we’ve just experienced can yield even better results. Similar rallies have led to gains of 7.1% in three months, 11% in six months, and 19.3% over the following year. These figures significantly outperform the buy-and-hold return for each respective time frame.
Moreover, a year after these setups, stocks were higher 91% of the time. The market was up by 20%-plus 55% of the time. This suggests that the remarkable rally we witnessed last year is not likely to end in the near future. On the contrary, it’s likely to persist.
The possibility of another gain of 20% or more this year is not out of the question. This is why owning stocks in 2024 should be a serious consideration.
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