The stock market usually goes up 📈
But keep in mind that 'usually' does not mean 'always' ⚠️
Stocks rallied in 2024 with the S&P 500 climbing 23.3% to close the year at 5,881.63.
A resilient U.S. economy bolstered sales growth during the year. Meanwhile, corporations widened their profit margins, which amplified earnings growth. Already-high stock market valuations got richer — but this can be at least partly explained by the prospects for further margin gains and earnings growth in 2025 and beyond.
It’s the latest reminder that the stock market usually goes up.
If you feel uneasy about the >20% gain, you really shouldn’t. Gains of this scale are actually common.
As we discussed in October, you don’t earn long-term average returns by experiencing a lot of average years. You earn them by experiencing a lot of above-average years and some below-average years.
Importantly, long-term investors in the stock market experience far more positive years than negative years.
Any way you slice it, the historical data confirms that the stock market usually goes up.
“The S&P 500 remains in a bull market, and for all periods since 1928, the S&P 500 has been in a bull market on nearly 80% of all trading days,” Bespoke Investment Group analysts wrote in their annual outlook report.
“Bull markets have historically been much more prevalent than bear markets, so if you bet against the market, the odds are stacked against you,” Bespoke analysts said.
And prices don’t go up for the sake of going up. Rather, they are supported by fundamentals. Specifically, the economy usually grows, which helps earnings to usually grow.
“The U.S. economy often grows at a solid pace, and the stock market has been on a bullish long-term uptrend as a result,” Ed Yardeni of Yardeni Research wrote. “In the post-World War II period, from 1945 to 2023, the average recession lasted about 10 months. Since 1945, there have been 12 recessions that occurred during just 13% of that time span.”
There are some comparability issues when measuring the U.S. stock market against the U.S. economy.
That said, the two aren’t entirely unrelated. And it is the case that earnings — like GDP — have trended higher for a very long time.
And earnings are the most important long-term driver of stock prices.
‘Usually’ does not mean ‘always’ ⚠️
I launched TKer as the newsletter that tells the story about how the stock market usually goes up.
But it’s important to remember that “usually” does not mean “always.”
The stock market has a history of some bad years — and many bad days. Even in up years, the market has experienced some ugly drawdowns. Investing in the stock market is an unpleasant process.
So while the near-term outlook for the market is arguably favorable, you should always keep your stock market seat belts fastened.
The good news is what usually happens is the stock market goes up. It goes up on most days and in most years, and those gains have historically overwhelmed the many temporary losses during long-term investors’ holding periods.
-
Related from TKer:
For more on the near-term outlook for stocks, read: