The S&P 500 Ventures into Unchartered Territory
Additional content provided by John Lohse, Sr. Analyst.
Key Takeaways
- After over two years and 512 trading days, the S&P 500 has finally broken out above its previous high.
- Last Friday’s close of 4,839.81 was the first day the index finished above 4,796.56 since January 3, 2022.
- The elongated stretch between highs historically suggests above-average returns going forward.
How it Unfolded
After stumbling out of the gate to start the year, the S&P 500 has found its footing and broken out to levels never reached before. These new highs might seem a bit sweeter to equity investors considering the notably bumpy ride they endured to get here. We recently explored the historical implications of this arduous path to new highs and what it could mean for future returns. Now, we can officially timestamp the date of the record high, the 512-day duration, and its 25.5% maximum drawdown, displayed in the chart below.
Periods With at Least One Year Between New S&P 500 Highs
| Date of Previous Record High | Date of New Record High | Trading Days Between Highs | Maximum Drawdown | 12-Month Forward Return |
| 1/11/1973 | 7/17/1980 | 1,898 | -48.2% | 7.7% |
| 3/24/2000 | 5/30/2007 | 1,803 | -49.1% | -8.5% |
| 10/9/2007 | 3/28/2013 | 1,376 | -56.8% | 18.4% |
| 11/29/1968 | 3/6/1972 | 820 | -36.1% | 4.9% |
| 8/2/1956 | 9/24/1958 | 540 | -21.6% | 14.1% |
| 1/3/2022 | 1/19/2024 | 512 | -25.5% | ? |
| 11/28/1980 | 11/3/1982 | 488 | -27.1% | 14.4% |
| 8/25/1987 | 7/26/1989 | 485 | -33.5% | 5.3% |
| 12/12/1961 | 9/3/1963 | 434 | -28.0% | 13.6% |
| 8/3/1959 | 1/27/1961 | 375 | -13.9% | 11.3% |
| 10/10/1983 | 1/21/1985 | 324 | -14.4% | 17.4% |
| 2/9/1966 | 5/4/1967 | 310 | -22.2% | 4.6% |
| 5/21/2015 | 7/11/2016 | 286 | -14.2% | 13.5% |
| 2/2/1994 | 2/14/1995 | 260 | -8.9% | 35.9% |
| Average | 11.7% | |||
| Median | 13.5% | |||
| Percent Positive | 92.3% |
Source: LPL Research, Bloomberg 01/22/24
Disclosures: Past performance is no guarantee of future results. All indexes are unmanaged and can’t be invested in directly. The modern design of the S&P 500 stock index was first launched in 1957. Performance back to 1950 incorporates the performance of the predecessor index, the S&P 90.
In somewhat ironic fashion, the same cohort of stocks that torpedoed the index into the 2022 doldrums were the ones that helped lift them out. Mega-cap names propelled the S&P 500’s recovery throughout 2023 and into the start of this year. From December 31, 2021, through January 19, 2024, the NASDAQ 100 Index (NDX) beat the S&P 500 (SPX) by just over 3% cumulatively (7.97% vs 4.96%). However, from the SPX low on October 12, 2022, through Friday, the NDX beat it by over 24% (62.3% to 38.1%)! The graph below highlights the NDX (left-hand side) and SPX (right-hand side) price levels from the start of 2022 through Friday.
NASDAQ 100 Pulls Down, Then Snaps Back Vs. the S&P 500
Source: LPL Research, Bloomberg 01/22/24
Disclosures: Past performance is no guarantee of future results. All indexes are unmanaged and can’t be invested in directly. The modern design of the S&P 500 stock index was first launched in 1957. Performance back to 1950 incorporates the performance of the predecessor index, the S&P 90.
Digging into the 512-day drought for the S&P 500, we find there were 263 days of negative returns, and 249 days of positive returns. The longest consecutive daily losing streak during that period was six trading days, which happened twice, the second occurrence culminating on the October 12, 2022, low. The longest winning streak was eight trading days, which started on October 30, 2023, coinciding with the Federal Reserve (Fed) signaling a pivot on interest rate policy. The chart below illustrates the dispersion of winning and losing streaks, with marked sustained outperformance precipitating the new all-time high.
S&P 500 Pulls Together, Leading to New All-Time Highs
Source: LPL Financial, Bloomberg, 01/22/24
Disclosures: Past performance is no guarantee of future results. All indexes are unmanaged and can’t be invested in directly.
Summary
While the breakout by the S&P 500 to fresh record highs is certainly welcome news, we’ll continue to keep an eye on the overall backdrop of the economy and equity markets. The fourth quarter earnings season has begun, and we expect earnings to drive the market higher from here. We forecast $235 and $250 in S&P 500 earnings per share (EPS) in 2024 and 2025, which puts a fair value range on the S&P 500 of 4,850–4,950 based on a price-to-earnings ratio between 19 and 20. LPL Research currently recommends a neutral weight to equities, an overweight to domestic versus emerging markets, an up-market cap exposure, and a tilt toward large cap growth equities.
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Indexes are unmanaged and cannot be invested into directly. Index performance is not indicative of the performance of any investment and does not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
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