Stock market's hot streak is continued through this summer, with US equities adding to their 24 gains in July as the focus remains spread across the health of the economy, outlook for the Federal Reserve interest rate cuts, the path of corporate profits, and the approaching presidential election. It's been said that history doesn't repeat itself, but it often rhymes.
And I'd say this is particularly poignant at the present time because as we evaluate key conditions of the current investment backdrop, similar periods in the past can offer signals for what might lay ahead as we advance through 2024. Now, these conditions include the strong stock market rally, which is led by a prolific run in technology stocks, high but falling inflation, progressing monetary policy settings as the Fed looks to shift from rate hikes to rate cuts, and a humming economy that now faces questions about its ability to sustain its advance.
We think it's worth examining some notable historical similarities. But before we do, let's start with a quick tale of the tape for the markets so far in 2024. The stock market's up 18% so far this year, reaching all-time highs again in July. Interest rates have ridden a roller coaster but have declined appreciably most recently with the 10-year benchmark rate dropping back in July to the lowest level since March.
The US economy has continued its expansion but has shifted to a lower gear in 2024, with GDP growth running closer to 2% right now, a slowdown from last year's robust 3.2% pace. Inflation remains on a path of moderation but is not falling as quickly or as sizably as markets, consumers, or the Fed wants to see. As such, the Fed has held its policy rate steady through the year in an effort to bring down inflation while trying to avoid snuffing out the economic expansion.
So as we evaluate what's next for this market, here are four historical comparisons that we think are informative for current conditions. The first would be the comparison to the '90s tech bubble. That reference alone might not inspire a lot of optimism, particularly given the market outcome from the popping of the dotcom bubble. We don't think we're destined for a repeat here, but it is worth noting that there are some relevant similarities.
First, as you can see from this chart, the current bull market that began in late 2022 looks quite similar to the run that began in 1995 in terms of the path of the gains. And moreover, technology stocks have been the driving force in both of those periods. In the '90s, it was internet stocks and the dotcom boom. Today, it's mega-cap tech companies and AI excitement. In both cases, rising valuations for tech stocks are the hallmark of the market environment.
But there are two distinctions that we draw in today's market. First, unlike many of the dotcom stocks of the '90s bubble, tech companies leading the way today are incredibly profitable, with diversified, stable income streams alongside prospects for AI growth. And second, while valuations in the tech sector have become quite full, if not stretched in some cases, valuations in the large tech companies today, and maybe more importantly for the market as a whole, are well below the unsustainable levels that we saw across the market in the late '90s. So overall, while market gains and technology leadership draw comparisons to the '90s dotcom boom, in our view, we're a long way from the conditions that filled the bubble back then.
Although market gains have been quite strong over the last year and a half, with the S&P 500 up better than 50% just since 2022, we think this bull market can still be viewed as one that's somewhat young. The bubble of the late '90s was filled by five consecutive years in which the S&P 500 gained at least 21%. So we've got a long way to go to getting close to that level.
The second comparison then would be to the high inflation environment of the early 1980s. While this cycle of inflation today never reached the heights of '80 and '81 when CPI was running at double digits, today's environment is directionally similar. We've passed the peak in inflation, which is good, but the primary focus is on the path ahead and bringing it down to more sustainable levels.
Thanks to supply chain improvements, goods prices have been in decline more recently. However, services and shelter prices have been the fly in the ointment that's prevented inflation from falling faster. Data in recent months do indicate that progress is being made, and that gives us some confidence that inflation can continue to moderate over the balance of 2024.
Now, I'd point out a few lessons from the early '80s. First, inflation didn't fall back to acceptable levels in a straight line. There were hiccups along the way, most notably in '83 and '84 as the economy was finding its footing. The first few months of 2024 saw similar hiccups in the path of falling inflation. And any additional kinks in falling inflation would to us represent catalysts for market volatility ahead.
Additionally and importantly, the experience of the '80s also demonstrated that high inflation doesn't have to last indefinitely despite the expectations to the contrary back then. We would draw one important distinction, however. Then it took a double-dip recession and some pretty significant economic pain to break the back of inflation.
This time, inflation has moderated with rather limited economic damage. We expect the economy to soften a bit further from here, which will bring the silver lining of additional inflation relief. But we don't think we have to see a significant recession to bring inflation back in line.
A third and particularly relevant historical similarity is the Federal Reserve's policy cycle in the mid-1990s. So for some context, the economy had emerged from an early decade recession in the early '90s. And inflation had started to move higher, requiring the Fed to hike rates sharply and aggressively in 1994. And as a result, the stock and bond markets logged notable declines.
Now, simultaneous losses in both stocks and bonds actually is quite uncommon, which makes for a pertinent comparison to 2022, which was the next time that we saw stocks and bonds suffer losses at the hands of aggressive Fed rate hikes. Here's what the good news comes in, though. In the mid '90s, the Fed was successful in hiking rates to quell inflation, but then followed that on with a transition to rate cuts that loosened monetary policy settings and avoided an economic downturn. In fact, the Fed's success ushered in an extended period of economic prosperity.
Markets are currently facing a very similar juncture, in which the Fed is seeking to manage policy in a manner that lowers inflation but preserves economic growth. The experience of the mid '90s demonstrates that such an outcome is possible. And we think the Fed will look to cut rates later this year, which we believe presents a viable case for ongoing economic growth that would add more mileage to this bull market.
And the fourth comparison relates to the outlook for the economy, most specifically the productivity boom throughout much of the 1990s. A key determinant of Gross Domestic Product, or GDP, is labor force productivity, which can be measured as total output per unit of labor or put more specifically, per hour worked. Productivity tends to bounce around through a business cycle, but it's a powerful driver of robust and lengthy expansions that three decades ago was sustained by a rise in the productivity rate.
Now at that time, this was the result of things like expanding access to the web, personal computing, or other workforce tailwinds that came from the dawn of the internet age, which seems a bit archaic today. And it's in its early days. But the sharp rise in productivity more recently poses the prospects for another productivity boom, this time, however, driven by forces like AI, automation, and other efficiency enhancing innovations. We doubt these are all going to show up immediately or without setbacks. But an extended period of economic growth would, in our view, be a sturdy pillar of support for financial market performance ahead.
So one final point to sum up. I mentioned that the stock market is off to a pretty hot start in 2024, with the S&P 500 posting a return of more than 15% just in the first six months of the year. And we've built on those gains so far in July.
So this raises the question, how does the market perform after such a strong start? Well, as this chart shows, the short answer is it performs quite well. In fact, in the last 3 and 1/2 decades, when stocks were up a similar amount to what we saw in 2024 in the first six months of the year, the market went on to an additional second half gain, each time posting an average full-year return of better than 30%.
So to be clear, such an outcome this year is far from assured. In fact, the lineup of slowing economic momentum, inflation surprises, changes to the timeline for the Fed interest rate cuts, and the upcoming election all represent credible catalysts for a market pullback. But given our view that the economy can avoid recession, corporate profits will continue to rise, and interest rates can and should become less restrictive, we would treat any such pullback as a compelling buying opportunity into what we believe is a bull market that still has plenty of life left in it.
So for more details on our market and economic outlook, along with how your portfolio and financial strategy can stay aligned to your goals, check out edwardjones.com, and talk with your Edward Jones financial advisor.