The coming year could have an impact on the economy compared to what has been experienced this year.
As an investment to bet on, the S&P 500 is a relatively robust index that tracks the performance of the 500 largest stocks traded on the New York Stock Exchange or Nasdaq. Companies in the S&P 500 Index include American Airlines, Arch Capital, Berkshire Hathaway and Eli Lilly And Co, among others.
Investing in the S&P 500 is like betting on the entire stock, which can create bearish or bullish contagion depending on the overall trend of the economy and the reaction of the component stocks at any given time.
The S&P 500 in 2023: Growth History and Future Potential
The S&P 500 has been used to track the performance of its constituent stocks for decades, a period that is accompanied by both positive and negative growth trajectories. Looking at the historical price performance of the S&P 500, there has been a positive annual growth trend since 2009, although fiscal 2018 ended with a 4.38% collapse.
The index’s impressive performance, closing up 18.40% and 28.71% in 2020 and 2021, one of the most economically distressed years of this decade, shows the resilience of the index, and how it can represent a good investment opportunity for investors.
However, there seems to be a very bearish capitulation right now, with the S&P 500 set to end the year with a 17% drop, its first double-digit drop since 2008. The U.S. Federal Reserve’s continued interest rate hikes, precipitated by rising inflation, have negatively impacted growth stocks and their associated indices.
However, rising interest rates will favor stocks in general starting next year, and the odds of inflation coming down are high, which is good for the S&P 500’s performance as a whole.
That said, the S&P 500 is also likely to rebound from its current lows, as the index has not posted consecutive annual declines since 2002. A repeat of this downward trend is unlikely, and despite the economic headwinds that may arise next year, the S&P 500 should end the year on a positive note.
The S&P 500 has a larger pool of stocks than the Dow Jones and Nasdaq, and therefore offers a better safety option for investors. To our readers who would like to inject capital into index funds that track the S&P 500, we recommend thorough research and appropriate risk management measurement.