The S&P 500 Just Hit a New Record. History Says This Will Happen Next.

The S&P 500 index (SNPINDEX: ^GSPC) roared to a record high earlier this year, confirming its presence in a bull market, but the index didn't stop there. Since then, it's continued to climb and recently hit a new record. Investors are piling into stocks on optimism about an improving economy and a steadying of interest rates -- including potential rate cuts ahead.

Solid earnings reports also have buoyed sentiment. About 78% of S&P 500 companies that have reported first-quarter earnings announced positive earnings-per-share surprises, according to FactSet data.

You'll find winning stocks in many industries, but the biggest stock market movers this year have been technology players -- especially those in the high-growth area of artificial intelligence (AI). They've led gains in the S&P 500 and the technology-heavy Nasdaq.

Now, after the S&P's recent performance, investors are wondering what will happen next. Will the index continue to climb, or have we reached the high point of the bull market? History has some answers for us.

An investor, standing in front of an electronic board showing stock prices, looks at a phone.

Image source: Getty Images.

A look back in time

Let's take a stroll back in time. The S&P 500's recent bear markets took place as follows:

  • January 2022 through October 2022
  • February 2020 through March 2020
  • October 2007 through March 2009
  • March 2000 through October 2002

Following each bear market, the S&P 500 had to reach a new record high to confirm that a bull market had actually started and that the gain wasn't just a bear market rally. The chart below shows the index's performance during those times and after that initial record high, and the S&P generally has gone on to hit new highs throughout the bull markets.

^SPX Chart

^SPX data by YCharts.

On top of this, market data also shows us bull markets historically last longer than bear markets. In a study of the S&P 500 from 1926 through 2017, bull markets lasted an average of nearly nine years, compared to less than two years for the average bear market, according to Raymond James & Associates, citing First Trust data.

Considering all of this, history tells us that the S&P 500 now could continue to climb and reach new record highs as this bull market progresses. At the same time, investor sentiment remains high, which should continue to lift stocks and the indexes. About 47% of investors are bullish on stocks today, up from 25% late last year, according to data from the American Association of Individual Investors. If history is right, gains are far from over.

Does history repeat itself?

The next big question is, what does this mean for you as an investor? First, it's important to keep this in mind: Though historical trends often repeat themselves, no one can guarantee this will happen on every occasion. The market could do something unexpected at any point. That said, history generally has served as a helpful guide over time.

Today, it's reasonable to be optimistic about the bullish trends and get excited about the possibility of positive momentum ahead -- but you don't want to plan your investment strategy around buying and selling over a period of months to try to benefit from this. You're likely to score a much bigger win if you identify companies today that are trading at reasonable valuations and have solid prospects -- and commit to them for years.

Today's bullish environment may supercharge a company's shares. However, if you've chosen a quality company, you're likely to gain even more by holding onto the stock for the long term instead of selling to lock in short-term gains.

Technology companies such as AI chipmaker Nvidia or cloud computing giant Amazon offer bright prospects today because of their solid earnings track records and their presence in the growth area of AI, for example. But you'll find promising companies in other areas, too, such as healthcare or financials.

It's key to build your portfolio according to your investment style, whether that's aggressive or cautious, regardless of the market environment of the time. The current market offers the opportunity to discover under-the-radar tech stocks that may come to your attention when markets favor growth. And a particular market environment may help you find bargains or get in on a player that might add a spark of growth to your portfolio.

Right now, after the S&P 500's latest record, history shows us there's reason to be optimistic about the index going on to reach new highs. But the best news is, no matter what happens next, you'll benefit by finding investing opportunities today and holding on for the long term.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Adria Cimino has positions in Amazon. The Motley Fool has positions in and recommends Amazon and Nvidia. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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