The S&P 500 Index (SP: .INX), representing the US stock market, has produced a banner year so far in 2024 and is up 28%.
At the time of writing on Monday, the index is at 6,090 points, another record high for the US equity benchmark.
For many investors, the prospect of buying into any asset or asset class, in this case, US stocks, can be daunting. It may even go against logic at face value.
But historical data suggests otherwise. That is, strong gains don't necessarily lead to weaker returns.
Let's put some numbers to this and see what the experts say.
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History says S&P 500 returns remain strong
In a post to LinkedIn, Ophir Asset Management cites Goldman Sachs research noting the relationship between one-year historical returns and forward returns for the S&P 500.
Investors can be pleased with the findings.
Years with gains exceeding 20% (just like in 2024) typically lead to above-average returns the following year.
The median return after such a bombastic year has historically been 13%.
For reference, according to S&P Global, the long-term market return of the S&P 500 Index has been roughly 10% for the past 100 years.
This debunks the idea that a great year inevitably leads to a slump. As Ophir Asset Management aptly noted:
Don't get worried out of the market just because it's been roaring in the past year. Good returns are still typically ahead.
The old adage "time in the market beats timing the market" remains as true as ever!
And the data stacks in our favour when looking at periods following all-time highs as well.
In a separate LinkedIn post, Chief Investment Officer of Syzz Group, Charles-Henry Monchau, emphasised that historically, investing when the market is at record highs "has been a better strategy than buying on any other day".
Monchau shows that, from 1988 to 2023, buying at the market tops produced outsized gains. Cumulative returns were 48% over three years when doing so, up to 8 percentage points higher than when buying on "any random day".
For Aussie investors looking to capitalise on U.S. market performance, the SPDR S&P 500 ETF Trust (ASX: SPY) offers a straightforward way to gain exposure.
It is an exchange-traded fund (ETF) that directly tracks the S&P 500 Index.
What are the projections?
Investment bank UBS is also bullish on the S&P 500's prospects for the next two years. It forecasts the index to reach 6,600 by the end of 2025.
This will be driven by factors such as falling interest rates, a strong US economy and productivity gains from technology.
We think the US equity market looks Attractive and expect the S&P 500 to hit 6,600 by the end of 2025, around 10% higher than today's levels.
The US economic backdrop is supportive, the market is less at risk from tariffs than other international markets, and structural trends around AI and power and resources bolster the outlook.
[Artificial intelligence] AI-related companies that span semiconductors, cloud service providers, devices, and data centers account for over one-third of the S&P 500 by market cap. We expect around 11% S&P 500 earnings per share growth in 2024 and 8% in 2025.
UBS also highlighted potential policy tailwinds, including possible tax cuts and deregulation under a Trump administration, as further catalysts for market growth.
Foolish takeaway
The S&P 500's stunning performance in 2024 might make you pause, but history tells us that strong years often pave the way for more gains.
For investors, staying the course and maintaining a long-term perspective could be the winning strategy. As always, diversification remains key, and ETFs like SPY provide a simple, cost-effective way to ride the wave of US market growth.
