The S&P 500 delivered double-digit returns in the first half of 2024, something that has often signaled more gains in the stock market during the second half of the year.
of S&P 500 (^GSPC -0.41%) advanced 14.5% in the first half of 2024. This momentum was initially driven by hopes of a rate cut. Investors entered the year thinking the Federal Reserve would cut its key interest rate six times. But rising inflation restored those expectations. The market now anticipates only two cuts later this year, according to CME group‘s FedWatch Tool.
Fortunately, enthusiasm for artificial intelligence (AI) provided a second wind for the S&P 500. Investors have shrugged off concerns about the macroeconomic environment and piled into AI stocks. For example, Nvidia has only contributed about 30% of the gains to the S&P 500 year to date, while Microsoft, AlphabetAND Amazon have collectively brought about 26% of profits.
The S&P 500’s performance in the second half of 2024 will depend on how those variables continue to evolve, but one stock market indicator says the index will maintain its upward momentum. Specifically, after double-digit returns in the first half of the year, the S&P 500 has almost always climbed even higher during the second half. Here’s what investors need to know.
History says the S&P 500 will rise in the second half of 2024
Going back to 1984, the S&P 500 has returned at least 10% during the first half of the year on 14 occasions. The index continued to move higher during the second half of the year in 12 of those 14 cases, or 86% of cases. The chart below provides more details.
|
YEAR |
S&P 500 first half return |
S&P 500 Second half return |
|---|---|---|
|
1985 |
15% |
10% |
|
1986 |
19% |
(3%) |
|
1987 |
26% |
(19%) |
|
1988 |
11% |
2% |
|
1989 |
15% |
11% |
|
1991 |
12% |
12% |
|
1995 |
19% |
13% |
|
1997 |
19% |
10% |
|
1998 |
17% |
8% |
|
1999 |
12% |
7% |
|
2013 |
13% |
15% |
|
2019 |
17% |
10% |
|
2021 |
14% |
11% |
|
2023 |
16% |
7% |
|
average |
N/A |
10% |
Data source: YCharts.
As shown above, when the S&P 500 has advanced at least 10% during the first half of a given year, the index has returned an average of 10% during the second half of the year.
Past performance is never a guarantee of future results, but history implies double-digit gains in the S&P 500 over the remaining months of 2024. This is significant because the S&P 500 is considered the best benchmark for the overall stock market in USA. Investors can take advantage of that upside potential by buying individual stocks, especially those that fall into the AI enabler category, or an S&P 500 index fund.
What investors should watch in the second half of 2024
Wall Street will continue to be fixated on inflation and interest rates in the second half of the year, so investors should monitor both metrics. The Federal Reserve expects inflation to cool to 2.5% this year, as measured by the personal consumption expenditures (PCE) price index, but policymakers may cut interest rates sooner than expected if inflation softens more quickly. This would theoretically stimulate the economy and boost corporate earnings, potentially driving the S&P 500 higher.
Alternatively, the Federal Reserve may not cut interest rates at all this year if inflation remains elevated. In that scenario, high borrowing costs would continue to weigh on consumer and business spending, creating headwinds 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 across the stock market, potentially dragging down the S&P 500.
Also, investors should be aware of the uncertain 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 10-year average of 21.4 times earnings. This means that many stocks are expensive by historical standards, so any relevant bad news can have a particularly pronounced impact on the stock market.
Of course, these aren’t the only variables that could affect the S&P 500 in the second half. They are simply the furthest downstream. After all, anything that affects corporate earnings or investor sentiment — whether it’s a presidential election, geopolitical turmoil, advances in AI, or any number of impossible-to-predict events — can shake the stock market for good. or worse in the remaining months of the year.
With that in mind, here is the most valuable insight I can offer: The stock market has consistently performed well over long periods. Economic downturns dragged the S&P 500 through 14 market corrections and five bear markets in the past three decades, but the index rebounded 2,060% over that period, which is the same as 10.7% annually. So patient investors who buy and hold good stocks (or an S&P 500 index fund) at reasonable prices are likely to be well rewarded over time, regardless of how the stock market performs in the second half of 2024.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, a subsidiary of Amazon, is a member of The Motley Fool’s board of directors. Trevor Jennewine has positions in Amazon and Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Microsoft and Nvidia. The Motley Fool recommends CME Group and recommends the following options: long January 2026 $395 Microsoft calls and short January 2026 $405 Microsoft calls. The Motley Fool has a disclosure policy.
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