Image Source: The S&P 500 has climbed more than 20% for two straight years. If you’re expecting a repeat of 2024, you’re asking a lot of the market gods.The stock market is more capable of big years than most think, but three, subsequent, 20%-plus-gain years are rare. In fact, we’ve only seen that happen once in the past seven decades.
Source: Callie Cox Media LLC, YChartsI think it’s important to recognize just how good we’ve had it, and what got us here. We’ve approached every economic report and headline with a load of skepticism, only to be pleasantly surprised more often than not. Fear has been our biggest asset as investors. And now, the fear seems to be melting away. Rightfully so, but are we becoming too complacent? Maybe.One thing I think a lot about is the rally’s DNA in the year ahead. Tech stocks are expensive, and the good fortune of profit growth and lower rates is spreading to other industries. Tech, however, may be one of only a few sectors that has enough star power to propel the stock market to big gains.Since 1990, there have been 12 years in which the S&P 500 has gained 20% or more. Tech was the best-performing sector in seven of those years. You may curse how reliant we’ve become on the Magnificent Seven stocks, but on balance, they’ve given us some extraordinary years.Can the stock market blow us away for a third year if chemical processors or toothpaste makers take the lead? That, and if tech’s favor turns, are we prepared for the fallout?Throughout history, we’ve seen that the biggest selloffs happen during economic crises with unexpected consequences. The biggest risk to your money next year may be a recession solely because markets follow earnings and the economy over time. Recession-fueled market crashes can be huge opportunities if you’re prepared for them.A good economy doesn’t guarantee a smooth market rally, though. Inconsequential 5% to 10% selloffs can hurt in the moment, and they’ve happened in 80% of the last 50 years. Statistically speaking, we’ll likely see one next year. We’ll definitely have enough headlines to spark one.When expectations are too high, small selloffs can turn into something bigger. Even worse, we can collectively ignore any brewing trouble. Invest in good times and bad because you’ve got wealth – and a legacy – to build. But don’t be naive.More By This Author:
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