The US stock market is on the cusp of achieving a rare feat: two consecutive years of 20% or more growth. As of Tuesday’s close, the S&P 500 had surpassed the 20% mark for the year, coinciding with its 41st record close. This milestone hasn’t been seen since the dot-com bubble era of the late 1990s.
Historically, the S&P 500 has only experienced back-to-back years of 20% or more growth twice: in 1955 and 1998. The latter instance was fueled by public enthusiasm for stock trading and the emergence of the commercial internet. This time around, the Federal Reserve’s recent interest-rate cut has boosted investor confidence, leading many to expect the index to continue its upward trajectory.
While some experts warn that the market’s strong performance may be due for a correction, others argue that large-cap US stocks still have room to grow. Despite valuations reaching historic highs, the biggest American companies are more profitable than ever, making their prices more reasonable when compared to expected future earnings.
Technology stocks, in particular, are driving the market’s growth, accounting for a significant portion of the S&P 500’s market value. However, other sectors, such as financials, industrials, and utilities, are starting to catch up, suggesting that the index’s rally may be more sustainable than initially thought.
History suggests that the good times for stocks can continue, albeit at a slower pace. Since 1957, the S&P 500 has seen an average gain of just over 9% during the year after a 20% return. As the market continues to evolve, investors will be watching closely to see if this rare achievement can be sustained.
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