The S&P 500 surged 14.5% in the first half of 2024, initially driven by hopes for rate cuts.
Investors expected six cuts from the Federal Reserve, but persistent inflation shifted expectations to just two cuts later this year, per CME Group’s FedWatch Tool.
Artificial intelligence (AI) excitement provided a second boost. Investors overlooked macroeconomic worries, pouring money into AI stocks.
Nvidia alone contributed about 30% of the S&P 500’s gains this year, with Microsoft, Alphabet, and Amazon adding another 26%.
What’s next for the S&P 500? History suggests continued growth. When the S&P 500 has seen double-digit gains in the first half of the year, it has risen in the second half 86% of the time since 1984. Let’s break it down.
Since 1984, the S&P 500 has posted first-half returns of at least 10% on 14 occasions. In 12 of those instances, it continued climbing in the second half. The median second-half return was 10%.
| 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% |
| Median | N/A | 10% |
Data source: YCharts.
Wall Street will focus on inflation and interest rates. The Fed expects inflation to drop to 2.5% this year. If it cools faster, we might see quicker rate cuts, stimulating the economy and boosting business earnings.
Conversely, if inflation stays high, the Fed might keep rates elevated. High borrowing costs could dampen consumer and business spending, potentially dragging the economy into recession.
Even without a downturn, high rates could hurt financial results, pushing the S&P 500 lower.
Valuations are another concern. The S&P 500 trades at 26 times earnings, above the five-year average of 23.3 and the 10-year average of 21.4. This premium means stocks are pricey, and bad news could hit hard.
Other factors—like the presidential election, geopolitical tensions, AI breakthroughs, or unexpected events—could also sway the market.
Here’s the key takeaway: The stock market has performed well over the long haul. Despite 14 market corrections and five bear markets in the past three decades, the S&P 500 returned 2,060%, or 10.7% annually.
Patient investors who buy and hold good stocks (or an S&P 500 index fund) are likely to be rewarded over time, regardless of 2024’s second-half performance.
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