After a Huge Year for the Markets, Stocks Could Hit All-Time Highs Soon

All three major stock indexes reached new 2023 highs on Tuesday, and investing experts think it's possible to reach some all-time records before the end of the year.

It would only take a roughly 200-point increase for the the S&P 500 — the index generally considered to measure the strength of the overall stock market — to hit its all-time high. Up 20.9% since the start of the year, the index is currently trading at 4,640, not far off the all-time high of 4,819 set on January 4, 2022.

"A sub-5% advance between now and the end of the year would challenge the old high," says Sam Stovall, chief investment strategist at CFRA. "It's certainly doable."

Stocks nearing all-time highs

Here's how major indexes have performed in 2023:

S&P 500

S&P 500 now: 4,640
All-time high: 4,819 on January 4, 2022
2023 Performance: Up 20.9%

Dow Jones Industrial Average

Dow Jones Industrial Average now: 36,562
All-time high: 36,953 on January 5, 2022
2023 Performance: Up 10.3%

Nasdaq Composite

Nasdaq Composite now: 15,515
All-time high: 16,212 on November 22, 2021
2023 Performance: Up 38.7%

Stocks soar despite high interest rates

Overall, it’s shaping up to be a strong recovery year for the market after 2022 — which was the worst year for stocks since the Great Recession. (The S&P 500 ended last year down 19.4%.) Heading into 2023, many observers were worried there would be a recession, the Fed would hinder the market with endless rate hikes, and the gloom of 2022 would repeat, Stovall says.

Things are shaping up much better than what pessimists predicted. The country avoided a recession, inflation is finally cooling, and consumer spending is still strong supported by low unemployment.

In some ways, it's remarkable that 2023 has been such a good year for stocks and the economy in general. Interest rates and inflation were the most obvious sources of concern, but the year had other challenges, like the banking system turmoil amid the Silicon Valley Bank collapse, says Quincy Krosby, chief global strategist for LPL Financial. "The market has been able to navigate all of these obstacles," she says.

But companies' strong earnings supported the performance of stocks in 2023, she says. Major Earnings reports tended to be solid throughout the year, confirming that companies were managing their costs and seeing inflation ease at long last.

Investor sentiment: 'The worst is behind us'

August, September and October were down months for the S&P 500. Since then, stocks have been on a roll since thanks to positive economic news and growing expectations that the Fed will cut rates next year. (On Wednesday, the Fed is expected to announce it's holding benchmark interest rates steady at 5.25% to 5.5% following a two-day meeting.)

Economists at Bank of America, for example, forecast three rate cuts in 2024 beginning in June. While predictions still vary widely among market experts, lower inflation and falling Treasury yields support expectations for rate cuts, Krosby says.

The market appears more stable than it was this time last year, with recession fear hopefully in the past and inflation falling closer to normal levels. Consumers are navigating the high interest rate environment and will likely be eager to buy homes and cars and other commonly financed items when rates come down. Notably, mortgage rates have recently slid to the lowest level since mid-August.

Investors are settling into the mindset that "the worst is behind us," Stovall says. Historically, the market tends to perform well after the Fed switches from a period of rate hiking to rate cutting, he adds.

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