Key Points
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The S&P 500 could be poised for a near-term downturn.
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But the historical data indicate it will continue to rise over the long term.
The S&P 500 has risen more than 30% over the past 12 months and currently trades near its all-time high. However, it looks historically expensive at 31 times earnings — so investors shouldn’t be surprised if those valuations cool off and the market pulls back. On the bright side, the data from the past 100 years indicates the market will easily bounce back — so you shouldn’t hastily sell the Vanguard S&P 500 ETF (NYSEMKT: VOO) or other index-tracking ETFs yet.
What happened over the past 100 years?
The modern S&P 500, which includes the 500 most prominent companies in the United States, was created on March 4, 1957. Since its inception, it’s risen about 14,830%.
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Its predecessor, the Standard Statistics Index, was created in 1923 as an index of 233 stocks. In 1926, it was expanded into a broader composite index with daily calculations. Most long-term charts of the S&P 500 include the returns of its predecessor, which preceded its 1957 launch.
Including those earlier returns, the S&P 500 rallied 56,780% over the past century, turning a $1,000 investment (equivalent to $18,656 today) into $568,800. That easily outpaced the 1,766% inflation rate over those 100 years — even as the world endured two world wars, the Great Depression, and five global recessions since World War II.
While past performance never guarantees future gains, the stock market’s resilience is impossible to ignore. It could endure painful multi-year declines, but it will keep rising as the U.S. economy expands and the stronger companies replace the weaker ones. In other words, it’s smarter to either do nothing or buy more stocks when the next market crash happens.
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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
