Topline
The S&P 500 capped its best nine-month stretch to open a year since the turn of the millennium Monday, a rally marked by bullishness surrounding the first interest rate cuts in years and the artificial intelligence boom.
Bullish views have dominated Wall Street in 2024.
Key Facts
A 0.4% rise during a quiet Monday trading session, the final one of the third quarter, sent the index’s year-to-date gain to 20.8%.
That’s the best start to a year for the leading U.S. stock index since 1997, when the S&P rose 27.8%, according to FactSet data.
The S&P’s 2% gain this month is its best September return since 2019, breaking the 2020-23 losing streak in which the index declined an average of 5.7%, and it’s the fifth-consecutive month in the green for the S&P, with April the only losing month of 2024.
The Dow Jones Industrial Average and the tech-concentrated Nasdaq have also soared: The Dow is up 1.4% in September, 8% during Q3 and 12% year-to-date, while the Nasdaq is up 2%, 2% and 20%.
What Stocks Are Best This Year?
On a full-year basis, big tech stocks most directly benefiting from the generative AI boom have performed best. The information technology sector is the S&P’s top-performing, up 29%, led by AI darling Nvidia’s 140% gain, the top of any stock listed on the S&P for the full year. But the market has shifted slightly in recent months as investors anticipated and reacted to this month’s supersized rate cuts: Real estate and utilities are this quarter’s top-gaining sectors as the capital-intensive stocks benefited from downward-trending borrowing costs, while consumer discretionary stocks were September’s best performer as the sector benefited from quieting recession fears, according to Fidelity data. The S&P’s top returner for the quarter was insurer Erie Indemnity at 49%, joined by home builder D.R. Horton, commercial real estate firm CBRE Group and General Electric spinoff GE Vernova in the top 10, while utilities Vistra and Constellation Energy were September’s top performers.
What To Watch For
If equities can close out 2024 on a high note. The final quarter of the year is historically the strongest for stocks, with the S&P posting a more than 4% average gain from 1957 to 2022, easily the best of the four quarters. A 4% rally would put the S&P at about 6,000 for the first time ever, a far cry from the sub-3,000 level in mid-2020. History shows the S&P has posted a positive Q4 return 11 of the 14 times it booked a 15% or more gain during the first nine months of the year, dating back to 1957, according to E*TRADE from Morgan Stanley.
Contra
Many market strategists view November’s U.S. presidential election as a potential headwind for stocks, considering Vice President Kamala Harris and former President Donald Trump’s divergent economic policies and the closely contested nature of the vote. Perhaps more concerning is the broader market’s fundamentals are stretched thin compared to history, as the S&P’s price-to-earnings ratio, which compares the S&P’s total price to its constituents’ projected profits over the next 12 months, is at 21.6, about 30% higher than its 25-year average of 16.4. Goldman Sachs has a year-end price target of 5,600 for the S&P, indicating about 2% downside.
