For the second year in a row, S&P 500 stocks posted total returns in 2024 of over 25%. As was the case in 2023, technology-oriented stocks led the market last year.
S&P 500 and sector total returns (including dividends)
The returns are as follows in this order: Cumulative bull market and 2024 annual. S&P 500: +70.1%, +25.0%. Communication Services +116.4%, +40.2%. Information Technology +129.9%, +36.6%.
"It sets the stage for continued strength heading into 2025," Bassuk added. For 2024, the Nasdaq surged 28.6%, while the bellwether S&P 500 notched a 23.3% gain, marking the index's best two-year run since 1997-1998. The blue-chip Dow posted a 12.9% advance for the year.
MarketWatch reported that original top-down estimates for the S&P 500 in 2024 ranged from 4,200 at JPMorgan to 5,400 at Yardeni Research, with a median target of 5,000.
We expect moderating shelter inflation in 2024 as the lag in market rents pricing should catch up in the inflation readings. We forecast core PCE prices—the Fed's preferred inflation metric—to rise 2.4% in 2024, down from 3.4% in 2023.
Analysts expect the S&P 500 to rise 14.8% in 2025, according to FactSet. US stocks surged last year as strong economic growth, cooling inflation, a series of Federal Reserve rate cuts and enthusiasm for President-elect Donald Trump's election victory boosted investor optimism.
Other long-term forecasts, compiled by Morningstar, show U.S. equities returning between 4-7% on average over the next 10-15 years, with higher expectations for international stocks. In most cases, these predictions still see U.S. stocks outperforming U.S. corporate bonds.
U.S. equities outperformed other developed markets in 2024, driven by a strong economy and the outcome of the U.S. presidential elections. The S&P 500 Index rose by 25%, led by strong gains in communication services, information technology, and consumer discretionary sectors.
$3,000 X 12 months = $36,000 per year. $36,000 / 6% dividend yield = $600,000. On the other hand, if you're more risk-averse and prefer a portfolio yielding 2%, you'd need to invest $1.8 million to reach the $3,000 per month target: $3,000 X 12 months = $36,000 per year.
S&P 500 Investment Time Machine
Imagine you put $1,000 into either fund 10 years ago. You'd be up to roughly 126.4% — or $3,282 — from VOO and 126.9% — or $3,302 — from SPY. That's not exactly wealthy, but it shows how you can more than triple your money by holding an asset with relatively low long-term risk.
Invest in Dividend Stocks
Last but certainly not least, a stock portfolio focused on dividends can generate $1,000 per month or more in perpetual passive income. However, at an example 4% dividend yield, you would need a portfolio worth $300,000, which is a substantial upfront investment.
Variable Rate of Return: Financial advisors often project an average rate of return for 401(k) plans between 5 to 8% over 20 to 30 years. However, this does not guarantee such returns due to market volatility and other factors.
Wall Street's 2024 projections for the S&P 500 reveal uncertainty, with the average forecast at 4,861, yet the index is trading at 6,014, 23% above estimates. Deutsche Bank predicts a climb to 7,000, driven by robust investor demand and corporate actions like buybacks.
The S&P 500 lost decade - 2000 to 2010
During this decade, S&P 500 investors had to deal with two market downturns - the aftermath of the .com bubble and the Global Financial Crisis (GFC). This led to the S&P 500 having a negative return over the decade (01/01/2000 - 31/12/2009).
For example, the Rule of 72 states that $1 invested at an annual fixed interest rate of 10% would take 7.2 years ((72 ÷ 10) = 7.2) to grow to $2. In reality, a 10% investment will take 7.3 years to double (1.107.3 = 2). The Rule of 72 is reasonably accurate for low rates of return.
U.S. large cap equities are expected to deliver annualized returns of 6% over the next decade, while international developed market equities are projected to slightly outperform at 7.1%. This edge comes from more attractive valuations, even as U.S. equities benefit from stronger earnings growth.
Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla. Those of you that have flipped on CNBC either on purpose or by accident sometime in the past two years may know those companies as the so-called Magnificent Seven, or “Mag 7” in Wall Street-speak.
The benchmark index of US equities is projected to rise to 6,500 by the end of 2025, a 9% price gain from its current level and a 10% total return including dividends, David Kostin, chief US equity strategist at Goldman Sachs, writes in the team's report. Earnings are predicted to increase 11% in 2025 and 7% in 2026.