As the year-end nears, holiday plans may distract from investing. With major indexes already rising, you might think it’s a poor time to buy stocks. The S&P 500, Nasdaq, and Dow Jones have climbed 26%, 29%, and 18%, respectively, this year.
With less corporate news, potential gains may seem limited. But key drivers of this year’s growth remain strong. Excitement around artificial intelligence (AI) and optimism about lower interest rates continue to support the market. These factors could fuel further gains before the year’s end.
Roaring Into a Bull Market
The S&P 500 entered a bull market early this year, hitting record highs. The Nasdaq and Dow Jones also posted strong growth. Investors backed new market drivers, especially AI, which boosted shares of key players like Nvidia and Broadcom.
Positive economic news, especially about interest rates, added to the optimism. The Federal Reserve’s two rate cuts this fall signaled a shift toward a lower-rate environment. Market watchers expect a third cut this December, encouraging further market growth. Lower rates support consumer spending and corporate borrowing, fostering economic growth.
As the market rose, stock valuations climbed too. The S&P 500’s Shiller CAPE ratio surpassed 35, a level seen only twice since the index’s creation in the 1950s. The Shiller CAPE ratio, which adjusts for inflation and considers 10 years of earnings, highlights the market’s high valuation. This could make investors hesitant to buy stocks before year’s end.
The S&P 500’s Year-End Performance
Over the past 10 years, the S&P 500 has gained in December six times. It declined in 2022, 2018, 2015, and 2014, with respective drops of 5.9%, 9.1%, 1.7%, and 0.4%. Notably, the biggest declines occurred during difficult years for the market.
For instance, in 2018, worries about China’s economy dragged down markets. In 2022, inflation and rising interest rates triggered stock market declines. Excluding those years, the trend shows December gains. Investors in index funds or well-chosen stock mixes often benefited from buying stocks in early December.
Should You Buy Now?
Should you buy stocks before the new year? Historical data suggests December often brings gains, but patterns don’t guarantee future results. Stock valuations are high, which may deter some investors.
However, any time can be a good time to buy stocks. Two key reasons support this idea. First, quality stocks with reasonable prices exist even in an expensive market. Second, long-term investors benefit from ignoring short-term market swings. Short-term changes have little impact on multi-year returns.
If you spot promising opportunities, now could be a good time to invest. But, with a long-term focus, there’s no rush to buy. Assess your options and aim for long-term growth.
