The S&P 500 hit a new record. Why the milestone does (and does not) matter for your 401(k)

The S&P 500 hit another milestone this year, finishing above 5,000 for the first time.

This is good news for American 401(k)s, which are heavily invested in stocks, and comes just three weeks after the index notched its first record close since January 2022.

Tom Hainlin, national investment strategist at US Bank Wealth Management, called the record “a symbolic milestone.”

“It’s a big, round number,” he told USA TODAY. “It's a record. But I think for the average person with a 401(k), it still suggests that the economy appears to be doing well.”

Traders work on the floor of the New York Stock Exchange (NYSE) on January 19, 2024 in New York.

Why is the S&P 500 rising?

The S&P 500 closed Friday at 5,026.61, up 0.57%.

The market's performance was supported by signs that the Federal Reserve has ended its rate hikes and may reduce them this year. Excitement around artificial intelligence The progress also boosted company stock prices.

“We have been through a pandemic… We are in two wars. And yet there tends to be a “long-term upward gravitational pull” for stocks, said Kristina Hooper, chief global market strategist at investment management firm Invesco, who also noted that Rising interest rates have been a challenge during this period.

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Why should I care about the S&P 500?

So, is this a big deal for Americans who hold investments in a 401(k) retirement plan?

Yes and no.

The S&P 500, an index of 500 large publicly traded companies, is considered one of the best indicators of the health of Wall Street. When the benchmark index rises, Americans' 401(k)s also tend to rise.

“This is a broad group of very important stocks,” said Stephen Suttmeier, chief technical equity strategist at Bank of America.

But even if the 5,000 mark grabs headlines, experts say that level may not be sustained for long.

The first months of an election year are “pretty hectic” for the markets, according to Suttmeier. Similar milestones in the past have been followed by declines, meaning it may take some time before the index regains its footing above the 5,000 mark.

“I think we should be able to exceed 5,000 significantly. But I don’t think we will exceed 5,000 significantly in the next three or four months,” Suttmeier said, adding that he doesn’t find Friday’s milestone to be “that significant.”

But even if the index is falling, Hooper said the milestone is a sign of the market's resilience, noting that the S&P 500 has already doubled since surpassing 2,500 in September 2017.

“I think more than anything else, this is a symbolic event that reminds investors of the importance of staying invested,” she said.

However, some strategists say this step could provide a psychological boost to the market.

Adam Turnquist, chief technical strategist at LPL Financial, noted that the S&P 500's performance after nine other major milestones has been generally positive, with an average 12-month return of 10.4%.

“Round numbers such as 5,000 often provide a psychological area of ​​support or resistance to the market,” Turnquist said in an emailed comment.

Where did the Dow Jones Industrial Average close?

The Dow Jones Industrial Average closed at 38,671.69 on Friday, down 0.14%.

And the Nasdaq?

The Nasdaq closed at 15,990.66, up 1.25%.

This article was originally published on USA TODAY: The S&P 500 closed above 5,000 for the first time. Your 401(k) is happy

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