The S&P 500 has delivered double-digit returns in the first half of 2024, which often signals further gains for the stock market in the second half of the year.
of S&P 500 (^GSPC -0.41%) It rose 14.5% in the first half of 2024. The momentum was initially driven by interest rate cut expectations. Investors entered the year expecting the Federal Reserve to cut its benchmark interest rate six times. But persistently high inflation has reset those expectations. Now, the market expects just two rate cuts in the second half of the year, according to the report. CME Group‘s FedWatch tool.
Fortunately, the artificial intelligence (AI) craze has provided a second tailwind for the S&P 500. Investors have ignored concerns about the macroeconomic environment and flocked to AI-related stocks. For example, NVIDIA It alone has contributed roughly 30% of the S&P 500’s gains this year. Microsoft, alphabetand Amazon Together, these account for approximately 26% of profits.
While the performance of the S&P 500 in the second half of 2024 will depend on how these variables continue to evolve, one stock market indicator predicts the index will maintain its upward momentum. Specifically, following double-digit returns in the first half of the year, the S&P 500 almost always rises further in the second half of the year. Here’s what investors need to know.
History predicts the S&P 500 will surge in the second half of 2024
Going back to 1984, the S&P 500 has returned at least 10% in the first half of the year 14 times. 12 of those 14 times, or 86% of the time, the index continued to rise in the second half of the year. You can see more details in the chart below.
|
Year |
S&P 500 First Half Returns |
S&P 500 Second Half Returns |
|---|---|---|
|
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 mentioned above, if the S&P 500 rises by at least 10% in the first half of a given year, the index returns an average of 10% in the second half of the year.
While past performance never guarantees future results, history suggests double-digit gains for the S&P 500 through the remaining months of 2024. This is important because the S&P 500 is considered the best benchmark for the entire U.S. stock market. Investors can take advantage of that potential upside by buying individual stocks, particularly those that fall into the AI ​​enabler category, or by buying S&P 500 index funds.
What investors should watch in the second half of 2024
Wall Street will likely continue to focus on inflation and interest rates later this year, so investors should keep a close eye on both measures. The Federal Reserve expects inflation, as measured by the personal consumption expenditures (PCE) price index, to settle at 2.5% this year, but policymakers could cut interest rates sooner than expected if inflation settles sooner. In theory, that could stimulate the economy, boosting corporate earnings and lifting the S&P 500 index.
Alternatively, if inflation remains high, the Fed may not cut interest rates at all this year. In that scenario, high borrowing costs would continue to weigh on consumer and business spending, creating a headwind for economic growth and potentially tipping the economy into a recession. Even if the economy avoids a downturn, rising interest rates could cause the overall stock market to perform worse than expected, dragging down the S&P 500 Index.
Additionally, investors should be aware of the volatile situation regarding valuations. The S&P 500 is currently trading at 26 times earnings, higher than its average of 23.3 times earnings over the past five years and 21.4 times earnings over the past 10 years. This means that many stocks are historically expensive, and any related bad news could have a particularly pronounced impact on the stock market.
Of course, these aren’t the only variables that could shape the S&P 500 in the second half of the year. These are simply the most downstream variables. After all, a presidential election, geopolitical turmoil, advances in AI, or any number of unpredictable events that impact corporate earnings or investor sentiment could sway the stock market for better or worse in the remaining months of the year.
With that in mind, here’s the most valuable insight I can offer: The stock market has consistently performed well over the long term. Economic downturns have caused the S&P 500 to experience 14 market corrections and five bear markets over the past 30 years, yet the index still returned 2,060% during this period, which equates to 10.7% annualized. So regardless of how the stock market performs in the second half of 2024, patient investors who buy and hold good stocks (or S&P 500 index funds) at fair prices are likely to reap big rewards in the long term.
Suzanne Frey, an Alphabet executive, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of The Motley Fool’s board of directors. Trevor Jennewine has invested in Amazon and Nvidia. The Motley Fool has invested in and recommends Alphabet, Amazon, Microsoft, and Nvidia. The Motley Fool recommends CME Group and recommends buying Microsoft’s January 2026 $395 calls and selling Microsoft’s January 2026 $405 calls. The Motley Fool has a disclosure policy.
