This stock indicator has been 86% accurate since 1984 and signals a significant change in the second half of 2024.

THE S&P500 (INDEXSNP: ^GSPC) The Fed hiked 14.5% in the first half of 2024. That momentum was initially fueled by rate cut expectations. 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 now anticipates just two rate cuts later in the 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 It alone has contributed about 30% of the S&P 500's gains since the start of the year, while Microsoft, AlphabetAnd Amazon collectively generated around 26% of the gains.

How the S&P 500 performs in the second half of 2024 will depend on how these variables continue to evolve, but one stock indicator indicates that the index will maintain its upward momentum. Specifically, after double-digit returns in the first half, the S&P 500 almost always climbed even higher in the second half. Here's what investors should know.

History says the S&P 500 will soar in the second half of 2024

Going back to 1984, the S&P500 The index returned at least 10% during the first half of the year on 14 occasions. The index continued to rise in the second half on 12 of those 14 occasions, or 86% of the time. The chart below provides more details.

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 suggests 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 U.S. stock market. Investors can capitalize on this upside potential by buying 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.

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The Federal Reserve also may not cut interest rates 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 across the stock market, which could send the S&P 500 tumbling.

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 10-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 aren’t the only variables that could influence the S&P 500 in the second half of the year. They’re just the furthest down the road. Ultimately, anything that influences corporate earnings or investor sentiment—whether it’s the presidential election, geopolitical turmoil, advances in artificial intelligence, or any other unpredictable event—could shape the stock market for better or worse in the remaining months of the year.

With that in mind, here's the most valuable information I can offer: The stock market has consistently performed well over long periods of time. Economic downturns have dragged the S&P 500 into 14 stock market corrections and five bear markets over the past three decades, but the index still returned 2,060% during that period, which equates 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 performs in the second half of 2024.

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Suzanne Frey, an executive at Alphabet, is a member of the board of directors of The Motley Fool. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Trevor Jennevine 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 market indicator is 86% accurate since 1984 and announces a big movement in the second half of 2024 was originally published by The Motley Fool