3 Aspects Tell You Will US Equities Continue Their Rally After the Record Highs?

Last week, U.S. stocks hit historic highs, reflecting widespread optimism among investors. Now, the market’s attention has shifted to earnings reports and the upcoming Fed meeting in November, where there’s an 84% chance of a 25-basis-point rate cut.

Looking back at last week, all major indices— $.IXIC(.IXIC)$ $.SPX(.SPX)$ $.DJI(.DJI)$—rose more than 1%, with the Dow and S&P 500 both hitting record highs on OCT11.

Can the Rally Last Until Year-End?

With the prospect of rate cuts, strong macroeconomic data, and solid corporate earnings expectations, U.S. stocks are on solid footing to potentially continue their upward trend. Let’s dive into three key indicators that suggest this rally might extend through the end of the year.

1. October Highs as a Positive Signal

Historically, when the S&P 500 hits a new high in October, it’s usually a good sign. Since 1950, when the index has set a record in October, it has typically risen about 5% by the end of the year.

Over the past 20 years, the S&P 500 has hit a new high in October 18 out of 20 times, and in 2021, the rally continued with a 10.6% gain. Only in 1983 and 2007 did the index fail to extend its gains in the fourth quarter.

2. Strong 12-Month Gains

The S&P 500 has risen 35.2% over the past 12 months, one of its best performances ever. Historically, when the index gains more than 20% in the first nine months of the year, it tends to finish even stronger. This has happened nine times before (excluding this year), and only in 1967 and 1987 did the market fail to continue rising.

3. Dow and Nasdaq’s Momentum

The Dow Jones is up over 10% year-to-date, and since 1950, when this has happened, the Dow has continued to rise in the fourth quarter about 75% of the time, with an average gain of 5%.

Similarly, the Nasdaq is up 20% this year, and historically, when the Nasdaq is up by this much, it tends to rise another 6.6% in the last three months, with exceptions only during major market crashes like in 1987 and 1997.

Outlook for 2024

With all major U.S. stock indices showing strong trends and historical data backing further gains, it seems likely that the market rally could extend into the end of 2024.

Of course, past performance doesn’t guarantee future results, but the signs are certainly encouraging for investors heading into the final quarter of the year.