The S&P 500 Is Having a Great First Half of the Year. Here’s What Comes Next.

Start as you mean to go on—that’s good advice for most situations, and the market seems to be doing just that in 2024.

The first quarter was a remarkable one for the S&P 500, as the index gained more than 10% on the back of 22 record closes, the most for that period since 1998. Barron’s previously noted that the index would struggle to keep up such a blistering pace in the second quarter, but would likely end the year overall with gains.

Now, with the first half of the year drawing to a close on Friday, that’s looking like an even stronger possibility.

The S&P 500 has climbed about 15% so far this year and has already set 31 closing records. That’s the most record closes in the first half of a calendar year since 2021, when the index notched 34, according to Dow Jones Market Data. The S&P 500 is roughly keeping pace with the first half of 2023—a banner year in which the index gained more than 24%.

History is even more positive in terms of what is likely to happen next, although investors might want to steel themselves for some summer doldrums. The S&P 500 has gained 15% or more in the first half of the year 13 other times, with the index ending in the black every one of those years, Dow Jones Market Data show.. Year-end gains ranged from more than 46% in 1933 to as little as 2% in 1987, the year of the Black Monday crash.

Moreover, 1987 is the only one of those 13 years in which the S&P 500 failed to notch a double digit full-year gain; the next lowest-performing year was 1986, when the index still rose 14.6%. 1987 is also the only group member which saw the S&P 500 fall double digits in the second half of the year. In seven of the 13 years, the index’s return was higher in the second half; the median gain for all 13 years was 3%.

Looking at the individual quarters presents a choppier story. In seven of those 13 years, the S&P 500 fell in the third quarter, with a median decline of 1.2% for the overall group. However, the index recorded gains in the fourth quarter in 10 of those years, with a median rise of 4.7% for all 13.

So if history repeats itself, there’s close to a 50-50 chance the third quarter could bring losses—but a more than 75% chance that the rally will resume in the last three months of the year.

It’s worth noting how two members of the 13-year group, 1986 and 1987, were outliers for the S&P 500; the index’s yearly returns were lower than 15%. That means that in 11 of the 13 previous times that the S&P 500 recorded a 15% gain in the first half of the year, it made further progress in the second.

For all 15%+ first-half years, the median full-year gain for the index has been 26.7%; if that pattern holds, it implies a potential further gain of more than 10% by the end of 2024. That dovetails with Capital Economics’ prediction last week, when the firm argued that ongoing enthusiasm about artificial intelligence could lead the S&P 500 to 6,000 points by the end of the year.

Plenty of other firms, such as Mizuho and Trivariate Research, have likewise argued that investors shouldn’t avoid Big Tech and AI plays. These types of stocks have propelled much of 2024’s gains so far—and will likely keep doing so, the thinking goes.

Wolfe Research’s Chris Senyek made similar points this week. In a Thursday note, he wrote the that the usual suspects have driven the market’s gains this year—and while the past week has seen choppier trading, with some AI favorites like Nvidia and Broadcom falling, other tech stocks have offset that weakness, keeping the trend intact.

“Our sense is that volatility will continue to pick up over the summer,” he writes. “However, we expect this to generally benefit the Magnificent Seven, secular growers, and the overall Momentum Trade in the weeks ahead…Further, our sense is that the biggest companies driving these trends will once again put up very solid results during second-quarter earnings season.”

So as the curtain closes on the first half of the year, investors have something to look forward to in the back half as the road—however bumpy—is likely to lead higher.

Write to Teresa Rivas at [email protected]