Investors haven’t gone away in May.
The stock market’s hot start to 2024 is still going strong, with the S&P 500 continuing to break records, recently hitting 5,300. Growth opportunities in artificial intelligence and hopes for better-than-expected economic conditions highlight some of the factors that have helped investors remain bullish on the markets of late.
But even if you were optimistic on the markets, you may not have expected this impressive of a start to the year. And make no mistake, it’s already an incredibly strong year for the index as the S&P 500 has rarely been up this much this quickly.
The S&P 500 is off to one of its fastest starts in the past 25 years
Year to date, the S&P 500 has climbed by 11% (as of a week ago). That would be a great result for an entire year, but 2024 is just five months old. There’s still more than half a year to go. The results are especially impressive when you put into context how the index has done over the past 25 years.
| Year | S&P 500 return as of the end of May |
| 2024 | 11.21% |
| 2023 | 8.86% |
| 2022 | -13.30% |
| 2021 | 11.93% |
| 2020 | -5.77% |
| 2019 | 9.78% |
| 2018 | 1.18% |
| 2017 | 7.73% |
| 2016 | 2.59% |
| 2015 | 2.35% |
| 2014 | 4.07% |
| 2013 | 14.34% |
| 2012 | 4.19% |
| 2011 | 6.96% |
| 2010 | -2.30% |
| 2009 | 1.76% |
| 2008 | -4.63% |
| 2007 | 7.92% |
| 2006 | 1.75% |
| 2005 | -1.68% |
| 2004 | 0.79% |
| 2003 | 9.52% |
| 2002 | -7.05% |
| 2001 | -4.88% |
| 2000 | -3.31% |
Source: YCharts
This is just the third time in the past 25 years that the S&P 500 has been up by 10% or more as of the end of May. The previous two occurrences were in 2013, when the index was up by 14%, and in 2021, when it rose by nearly 12% through the first five months. On average, the S&P 500’s gains up until this point in the year have normally been around 2.6%, based on the same time frame.
Does this mean a sell-off is inevitable?
When the markets are at record levels, a big concern for investors is whether it’s time to consider selling off investments and locking in gains before it’s too late. The stock market, after all, can be volatile, and it wasn’t all that long ago in 2022 when investors were concerned about a prolonged bear market — the S&P 500 would tumble 19% that year.
Trying to time the market, however, can be a risky strategy because if you sell your investments and stocks continue to go up, then you can miss out on even greater profits. There’s no way to know for sure which direction the markets may be going in, which is why many of the world’s smartest investors advise against trying to time the market.
Peter Lynch summed it up best, saying, “People who exit the stock market to avoid a decline are odds-on favorites to miss the next rally.”
What should investors do?
Unless a business you’ve invested in is in worse shape or you’ve identified better investing opportunities out there to pursue, you might not necessarily want to make any changes to your investments.
If, however, you are concerned about your risk and exposure to the markets, you may want to consider investing in an exchange-traded fund (ETF) that mirrors the S&P 500, such as the SPDR S&P 500 ETF Trust (SPY 0.91%). That way, you don’t have to worry about exposure to an individual investment, and at the same time, you still have a position in the market.
Just as good and bad days on the markets are unavoidable, it can be nearly impossible to predict what the market will do over the course of the next week, month, or year. But in the long run, odds are that you’ll be better off staying invested in the market than trying to time it.
David Jagielski has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
