TLDR:
- S&P 500 gained 11% in first 100 trading days of 2024
- Historically, 10%+ gains in first 100 days led to 20%+ full-year returns
- Mid-cap stocks may outperform after Fed rate cuts
- S&P 500 currently up 20% year-to-date
- Past performance suggests potential for 7% further gain by year-end
The S&P 500 has shown remarkable performance in 2024, gaining 11% in the first 100 trading days of the year.
This strong start has caught the attention of investors and analysts alike, as historical data suggests it could be a predictor of substantial full-year returns.
According to data from JPMorgan Chase, over the past three decades, when the S&P 500 gained at least 10% in the first 100 trading days, it always ended the year with returns of 20% or more. This pattern has occurred seven times since 1994, with a median full-year return of 29%.
As of September 2024, the S&P 500 is already up 20% year-to-date, having risen from 4,770 at the start of the year to 5,738. If the historical trend holds, there could be potential for further gains, with some analysts suggesting the index could reach 6,153 before year-end, representing an additional 7% increase.
The S&P 500 is currently trading at 21.6 times forward earnings, which is higher than the 10-year average of 18 times. This elevated valuation could increase the risk of a market correction, particularly if economic data disappoints.
While large-cap stocks have been dominating headlines, some strategists are now turning their attention to mid-cap stocks.
Ryan Detrick of Carson Group suggests that mid-caps tend to outperform once the Federal Reserve starts cutting interest rates. This shift in focus comes as the Fed recently lowered interest rates for the first time since 2020.
Goldman Sachs analysis supports this view, finding that mid-caps typically outperform both large and small-cap stocks in the 12 months following the first rate cut.
The investment bank expects a 13% return for the S&P 400 mid-cap index over the next year, citing low valuations and resilient economic growth as potential catalysts.
Bank of America’s Jill Carey Hall describes mid-caps as the “best hedge” for the near term, noting better recent guidance and revision trends compared to small-caps. Mid-caps are also seen as less sensitive to interest rates and have lower refinancing risk than small-caps.
However, the market remains dynamic, and investor sentiment can shift quickly. Small-cap stocks, which have been favored earlier in the year, may face challenges due to weaker balance sheets and lower profitability compared to their larger counterparts. Some analysts, like Citi’s Stuart Kaiser, advise approaching small-caps “very carefully” due to potential market volatility.
Despite these concerns, Goldman Sachs’ David Kostin suggests that positive jobs data could increase investor appetite for risk, potentially benefiting smaller, less-favored firms.
