In 2022, the S&P 500 declined by over 19%, marking its worst year since 2008 during the Great Recession. Luckily, the index has bounced back since then, finishing 2023 up over 24% and now up over 15% through the first half of this year.
On June 18, the S&P 500 hit a new all-time high, topping over 5,487. This is great news for investors in the stock market's most popular and important index, but the huge gains have some investors concerned about a correction heading its way.
Whether the S&P 500 sees a decline in the back half of the year remains to be seen, but investors should keep a few things in mind.
A handful of companies leading the charge
Despite containing around 500 of the U.S.'s largest companies, the S&P 500's gains so far this year can be credited to a handful of big tech stocks leading the way. Let's look at the Vanguard S&P 500 ETF (VOO 0.65%), which mirrors the S&P 500. Here are the exchange-traded fund's top six holdings (as of May 31):
- Microsoft: 6.95% of the ETF
- Apple: 6.29%
- Nvidia: 6.10%
- Alphabet: 4.22%
- Amazon: 3.63%
- Meta Platforms: 2.31%
Together, these five companies make up just under 30% of the ETF, so their gains (or losses) can have a real effect on the S&P 500's performance. It's worked out in the index's favor, too.
Aside from Apple, which has lagged behind other big tech companies in stock gains, the S&P 500's top companies have all seen impressive gains this year. This is especially true for Nvidia, arguably the hottest name on the stock market for the past year or so.
If the S&P 500 wants to continue its run, much will depend on the performance of its top six holdings. The good news: Those companies each have growth opportunities that could fuel their runs further to finish out the year. The could-be-better news: A company like Nvidia may experience a pullback as investors worry about it approaching bubble territory.
History may be on investors' side
The most important thing to keep in mind is that nobody can predict how the stock market will move in the near term. Not me, you, Warren Buffett, Wall Street executives, nobody. If it were possible, there would be tons more investors raking in cash in abundance. Unfortunately, that's just not the case.
That said, there's nothing wrong with looking at history to gain insight and get a sense of trends. Below are the S&P 500's gains through the first six months of the year and how much it finished up or down at the end of the year:
| Year | Returns Through First Six Months | End of the Year Returns |
|---|---|---|
| 2023 | 15.91% | 24.23% |
| 2022 | (20.58%) | (19.44%) |
| 2021 | 14.41% | 26.89% |
| 2020 | (4.04%) | 16.26% |
| 2019 | 17.35% | 28.88% |
| 2018 | 1.67% | (6.24%) |
| 2017 | 8.24% | 19.42% |
| 2016 | 2.69% | 9.54% |
| 2015 | 0.20% | (0.73%) |
| 2014 | 7.14% | 11.39% |
Data source: YCharts. Table by author.
In eight of the past 10 years, the S&P 500 has finished with better returns than it had through the first six months of the year. That's an encouraging sign of what we may be headed for to end the year, but it's far from a given.
The focus should be on consistency over timing
It's easy to look at the stock market and want to plan your investing accordingly. Whether it's holding off on investing because you anticipate a slump or rushing to put money into the market because you anticipate a surge, many people fall victim to trying to time the market.
Timing the market correctly is virtually impossible to do consistently over time, so the focus should be on consistency. One of the easiest ways to remain consistent is by dollar-cost averaging.
When you dollar-cost average, you decide on an amount you can invest and then put yourself on an investing schedule. For example, you may decide you can invest $400 monthly. From there, you can decide to divide those investments into four $100 weekly investments, two $200 bi-weekly investments, or whatever amount and frequency works best for your financial situation.
You'll make some investments when the market is up and some when it's down. The most important part is to remain consistent and trust that it'll work out over time.
