The S&P 500 just did something it has never done before. Wall Street says the stock market will rise this year.

The S&P 500 (^GSPC -0.48%) is designed to reflect the entire US stock market. Specifically, the index measures the performance of 500 large U.S. companies, which together account for a significant portion of domestic stocks based on market capitalization.

The S&P 500 rose 24% last year as recession fears eased, and is up another 5% so far this year. Those gains pushed the index past 5,000 points for the first time last week (the S&P 500 is measured in points, not dollars). Very few investors would have expected this recovery when the S&P 500 collapsed to 3,577 points in October 2022. But signs of economic resilience and enthusiasm for artificial intelligence have been a strong tailwind.

Apart from the new record high, 5,000 points in itself is nothing special. But Wall Street analysts see upside potential of about 9% over the next 12 months. The S&P 500 has a bottom-up target estimate of 5,452 points for the next 12 months, according to FactSet. This number aggregates the median price target for each stock in the index and is therefore based on approximately 11,500 different valuations. In other words, it starts with company-level estimates (at the bottom) and moves up to create a target estimate for the entire index. But whether the stock market rises or falls in 2024 depends on many factors.

Here's what investors should know:

Wall Street expects the S&P 500's revenue and earnings growth to accelerate in 2024

The S&P 500 suffered three consecutive declines in quarterly earnings between the fourth quarter of 2022 and the second quarter of 2023. To explain further, the sum of earnings across the entire index divided by the total number of shares outstanding equals earnings per share for the entire index. This number fell for three consecutive quarters. But earnings rebounded in the second half of the year amid strong economic growth, and Wall Street expects that trend to continue in 2024.

In fact, analysts are forecasting an acceleration in sales and earnings growth in the S&P 500 this year, driven by particularly strong momentum in the technology and communications services sectors. The chart below compares actual growth in 2023 with projected growth in 2024 for S&P 500 companies.

Metric	2023	2024
Sales growth	2.5%	5.4%
Earnings growth	0.9%	10.9%

Data source: FactSet Research. Growth percentages for 2024 are forecasts.

If these consensus estimates prove correct, accelerating sales and earnings growth in the S&P 500 could improve sentiment and push the stock market higher.

However, analysts often revise their forecasts based on a constellation of microeconomic and macroeconomic factors. In fact, first-quarter estimates have already been revised downward to some degree, but FactSet Research says those cuts were smaller than average. In any case, investors should keep an eye on the companies in their portfolios while keeping an eye on the broader economic environment.

The US economy gained momentum in 2023, but momentum could slow in 2024

To curb inflation, the Federal Reserve has raised interest rates to their highest level since 2001. The rapid pace of these rate hikes prompted recession warnings from economists last year, but the U.S. economy actually gained momentum. Inflation cooled without a significant increase in unemployment, and gross domestic product (GDP) increased by 2.5% in 2023, up from 1.9% in 2022.

However, this acceleration in GDP was driven by government spending. Consumer spending and business investment actually slowed last year, and both are expected to slow even further this year. The World Bank estimates that U.S. economic growth will slow to 1.6% in 2024. If economic growth slows more than expected, it would likely hurt companies' financial results and potentially put downward pressure on the stock market.

However, economic growth could also exceed expectations if the Federal Reserve significantly cuts interest rates. Policymakers' latest forecasts are for three 25 basis point interest rate cuts this year. But CME GroupFedWatch's FedWatch tool – which uses price data from futures contracts to predict monetary policy decisions – shows a 50 percent chance that the Federal Reserve will implement at least five 25 basis point interest rate cuts in 2024.

In the latter scenario, business investment could rise faster than forecast, especially when it comes to technologies such as cybersecurity and artificial intelligence. This could lead to more robust economic growth, which could drive the stock market higher. Even if that doesn't happen, the long-term tailwinds behind cybersecurity and artificial intelligence should create long-term value for well-positioned investors.

Patient investors have been well rewarded in the past

Whether the S&P 500 rises or falls this year ultimately depends on market sentiment, which in turn is determined by variables such as companies' financial results and economic growth. Not even the smartest Wall Street analysts can predict these variables with absolute certainty, so investors should view short-term forecasts with skepticism.

A long-term mindset is the more prudent strategy. History clearly shows that patient investors are well rewarded over time. The S&P 500 has returned 1,800% over the past three decades, which equates to an annual return of 10.3%. This period encompasses such different market conditions that similar returns are likely over the next three decades. That doesn't mean the S&P 500 always goes up. The index has fallen and will continue to fall in certain years. However, if the growth of the last three decades had been spread evenly over that 30-year period, the index would have increased by 10.3% annually.

With this in mind, long-term investors can confidently invest money in the stock market today. However, before buying stocks, you should always research the companies and prioritize stocks that are trading at reasonable valuations in light of future growth prospects. Alternatively, contributing regularly to an S&P 500 index fund has been a successful strategy in the past.