You may not realize how great the stock market has been. But our columnists say it can’t keep rising at this pace for long.
September is typically a dangerous month for the stock market. In many years, so have the weeks before a contentious election.
But the returns seen by millions of investors lately have been fantastic — far better than Wall Street had predicted at the end of last year.
The S&P 500 is more than 20% above Wall Street’s consensus for the full year 2024. So Wall Street has sharply upgraded its outlook: If stocks have been rising, why not rise further?
Even in the midst of wars, catastrophic storms and intense political fights, it’s not crazy to think that. Stock market momentum is a powerful thing in and of itself. When the market goes up, it tends to stay up. Some important factors are working in the stock market’s favor: The Federal Reserve has made life easier for companies and investors by lowering interest rates, those companies are still generating impressive earnings, and there’s no recession in sight.
But the tide always turns at some point. While most people worry about a market crash, some strategists worry that stocks are rising too fast. “The risk of a crash has increased,” independent financial research firm Yardeni Research warned clients in a report last month. Translation: The market is in danger of getting carried away.
“The question is whether the frenzy is rapidly shifting from rational enthusiasm to the irrational frenzy of the 1990s,” said Yardeni Research. Irrational enthusiasm for the prospects of technology stocks in the late 1990s created a disastrous bubble that burst in March 2000 and took years to recover. The S&P 500 posted negative returns over the next decade.
The S&P 500, the most-watched U.S. stock benchmark, is up 5.9% this quarter and 22% since the beginning of the year through September, including dividends. It has returned a whopping 34.2% in the 12 months through September. That’s more than three times the average annualized return of 10.5% since 1926.
Most people own stocks and bonds indirectly, through mutual funds and exchange-traded funds (E.T.F.). The average fund has even outperformed the S&P 500. Part of the reason is that small-company stocks have outperformed the large-company S&P 500. This quarter, the average international stock fund has even outperformed funds focused on the United States. Bond funds haven’t performed as well, but they’ve also done well.
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