The S&P 500 Closing Above 5,000 Is Definitely Cool, But Don’t Read Too Much Into It

// Those of us who invest like to see those stock numbers in the green at the end of any given trading day. It’s a nice little psychological boost. When they turn out red instead it’s reminiscent of the harsh slashes meted out by a grumpy middle school English teacher correcting your grammar.

The importance of psychological effects should not be discounted. Yet, it is also important to acknowledge that you should not necessarily act upon something just because it makes you feel good or bad.

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Case in point: The S&P 500 finished last week above 5,000 for the first time. Traders credited new data showing continued progress on the Fed taming inflation as the bullish sentiment spread.

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That is definitely cool. The S&P 500 reached 5,000 and finished the trading day at that level, which had never happened before. We all got to watch our portfolios swell to new heights. Kind of neat to see a milestone like that in the stock market, particularly as we come off of two years in the doldrums for stock market investors.

All that being said, the number we use to track the progress of the S&P 500 (or any other stock index) is arbitrary. From a technical standpoint, it makes about as much sense to celebrate the S&P 500 reaching 4,776 as it does to celebrate the 5,000 level. I guess humans simply like round numbers followed by a lot of zeroes.

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That stock indexes have been steadily rising is way more important than the number a particular index is at at any given moment. We have seen sustained GDP growth, strong consumer spending, high corporate profits, and, yes, a stubborn albeit continually improving inflation situation. A close look at these sorts of factors offers tangible indicia of economic progress, which is far more useful than a raw number attached to a stock index.

Stocks have now hit several record highs in 2024 — six of them in January alone. That does not automatically mean even more new highs will be forthcoming.

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The data underlying expanding stock valuations paints a pretty rosy picture for at least the immediate future though, and if history is a lesson, new stock market records tend to come in on each other’s heels in more than just single digits. The first half of 2021, for instance, saw the stock market hit new record highs 33 times. Since the 1950s, the S&P 500 has reached a new record high on about 25 days per year on average.

So go ahead and celebrate the S&P 500 hitting 5,000 if you need something to celebrate; there is also Mardi Gras and Valentine’s Day this week. Any of the three might give you a fun excuse for a party, and each would be about equally valid to base an investment decision on.

The economic data which preceded the S&P 500 hitting 5,000 does point to a few more likely highs for the stock market on the horizon. As to whether it is a good time to up your investments, well, in hindsight the best time for that in recent memory would have been right around the summer or fall of 2022 when the stock market slumped.

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Let’s see how far we can climb in 2024. If the S&P 500 hits a few more record highs, you know, I don’t think I will particularly care how many pretty zeroes they come with.

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Jonathan Wolf is a civil litigator and author of Your Debt-Free JD (affiliate link). He has taught legal writing, written for a wide variety of publications, and made it both his business and his pleasure to be financially and scientifically literate. Any views he expresses are probably pure gold, but are nonetheless solely his own and should not be attributed to any organization with which he is affiliated. He wouldn’t want to share the credit anyway. He can be reached at [email protected].

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ATL Finance, Finance, Finance Docket, Jonathan Wolf