THE S&P500 (INDEXSNP: ^GSPC) rose 14.5% in the first half of 2024. That momentum was initially driven by rate cut hopes. Investors began the year expecting the Federal Reserve to cut its benchmark interest rate six times. But persistent inflation has reset those expectations. The market is now pricing in just two cuts later this year, according to CME GroupFedWatch tool.
Fortunately, the excitement surrounding artificial intelligence (AI) has given the S&P 500 a new lease of life. Investors have put aside concerns about the macroeconomic environment and flocked to AI stocks. For example, Nvidia alone contributed about 30% of the S&P 500’s year-to-date gains, while Microsoft, AlphabetAnd Amazon collectively generated around 26% of the gains.
The performance of the S&P 500 in the second half of 2024 will depend on how these variables evolve, but one stock indicator indicates that the index will maintain its upward momentum. Specifically, after double-digit returns in the first half of the year, the S&P 500 almost always soared even higher in the second half. Here’s what investors need to know.
History Says S&P 500 Will Soar in Second Half of 2024
Going back to 1984, the S&P 500 The index returned at least 10% in the first half of the year on 14 occasions. The index continued to rise in the second half of the year on 12 of those 14 occasions, or 86% of the time. The chart below provides more detail.
Year | First half performance of the S&P 500 | S&P 500 performance in the second half of the year |
|---|---|---|
1985 | 15% | ten% |
1986 | 19% | (3%) |
1987 | 26% | (19%) |
1988 | 11% | 2% |
1989 | 15% | 11% |
1991 | 12% | 12% |
1995 | 19% | 13% |
1997 | 19% | ten% |
1998 | 17% | 8% |
1999 | 12% | 7% |
2013 | 13% | 15% |
2019 | 17% | ten% |
2021 | 14% | 11% |
2023 | 16% | 7% |
Median | N / A | ten% |
Data source: YCharts.
As noted above, when the S&P 500 gained at least 10% during the first half of a given year, the index generated a median return of 10% during the second half.
Past performance is never a guarantee of future results, but history points to a double-digit rise in the S&P 500 over the remaining months of 2024. This is important because the S&P 500 is considered the best benchmark for the entire American stock market. Investors can capitalize on this upside potential by purchasing individual stocks, particularly those that fall into the category of AI Enablersor an S&P 500 index fund.
What investors should watch in the second half of 2024
Wall Street will continue to focus on inflation and interest rates in the second half of the year. Investors should therefore monitor these two indicators. The Federal Reserve expects inflation to fall to 2.5% this year, according to the Personal Consumption Expenditures (PCE) Price Index, but policymakers could cut interest rates faster than expected if inflation slows faster. This would theoretically stimulate the economy and boost corporate profits, which could send the S&P 500 higher.
Alternatively, the Federal Reserve might not cut interest rates at all this year if inflation remains high. In this scenario, high borrowing costs would continue to weigh on consumer and business spending, creating obstacles to economic growth that could lead to a recession. Even if the economy avoids a downturn, high interest rates could lead to worse-than-expected financial results in the stock market, which could send the S&P 500 lower.
Additionally, investors should be aware of the precarious situation regarding valuations. The S&P 500 currently trades at 26 times earnings, a premium to the five-year average of 23.3 times earnings and the ten-year average of 21.4 times earnings. This means that many stocks are expensive by historical standards, so any relevant bad news could have a particularly pronounced impact on the stock market.
Of course, these variables are not the only ones that could influence the S&P 500 in the second half. They are simply the furthest downstream. Ultimately, anything that influences corporate earnings or investor sentiment – ​​whether it’s the presidential election, geopolitical turmoil, advances in artificial intelligence, or any other unforeseeable event forecast – could influence the stock market for better or worse over the remaining months of the year.
With that in mind, here’s the most valuable piece of information I can offer: The stock market has a history of performing well over long periods of time. Economic downturns have dragged the S&P 500 through 14 market corrections and five bear markets over the past three decades, but the index has still returned 2,060% over that period, which works out to 10.7% per year. So patient investors who buy and hold good stocks (or an S&P 500 index fund) at reasonable prices will likely be well rewarded over time, regardless of how the stock market fares in the second half of 2024.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Amazon’s Whole Foods Market, is a member of The Motley Fool’s board of directors. Trevor Jennewine has positions on Amazon and Nvidia. The Motley Fool has positions on and recommends Alphabet, Amazon, Microsoft and Nvidia. The Motley Fool recommends CME Group and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a position in Amazon and Nvidia. disclosure policy.
This stock indicator has been 86% accurate since 1984 and signals a significant change in the second half of 2024. was originally published by The Motley Fool
