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

THE S&P 500(INDEXSNP: ^GSPC) rose 14.5% in the first half of 2024. This momentum was initially driven by hopes of lower rates. 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 only expects two reductions later this year, according to CME GroupThe FedWatch 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.

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 Tells Us That the S&P 500 Will Soar in the 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	S&P 500 performance in the first half of the year	S&P 500 performance in the second half
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% in the first half of a given year, the index returned a median of 10% in the second half of the year.

Past performance is never a guarantee of future results, but history suggests a double-digit gain for the S&P 500 in the remaining months of 2024. This is important because the S&P 500 is considered the best benchmark for the overall 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 one S&P 500 Index Fund.

What Investors Should Watch for in the Second Half of 2024

Wall Street will continue to focus on inflation and interest rate In the second half of the year, investors should therefore monitor these two indicators. Federal Reserve The Fed expects inflation to fall to 2.5% this year, as measured by 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.

The Federal Reserve may also not cut interest rates this year if inflation remains high. 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 slowdown, high interest rates could lead to worse-than-expected financial results for the broader stock market, which could send the S&P 500 into decline.

Additionally, investors should be aware of the precarious situation regarding valuations. The S&P 500 is currently trading at 26 times the profitsa premium to the five-year average of 23.3 times earnings and the 10-year average of 21.4 times earnings. That means 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. They are simply the furthest downstream. Ultimately, anything that influences corporate profits or investor sentiment – ​​whether it's the presidential election, geopolitical unrest, advances in AI, or any other impossible event to be expected – could influence the stock market for better or worse in the remaining months. of the year.

With that in mind, here is the most valuable information I can offer: The stock market has consistently performed well over long periods of timeEconomic slowdowns dragged the S&P 500 down to 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 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 Amazon subsidiary Whole Foods Market, is a member of The Motley Fool's board of directors. Trevor Jennewine has positions at Amazon and Nvidia. The Motley Fool holds positions 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 disclosure policy.