The S&P 500 Is Up Over 14% Halfway Through 2024. History Says This Is How It Will Do the Rest of the Year | The Motley Fool

The higher the S&P 500 goes, the more inevitable it is for doubts and questions to arise about how long the bullishness can last. Investors may be wondering whether stocks have become overvalued, if there’s a bubble forming, and — more importantly — whether it’s time to get out of stocks altogether and move your money into something safer.

Below, I’ll look at how the index has historically done after notching a strong performance at the halfway mark of the year, and whether investors should expect the rally to continue.

Strong starts have been more common in recent years

To put into perspective just how strong of a year 2024 has been, consider that this is just the fourth time in recent years that the index has been up by 14% after the first six months of the year. Here’s how it has done in the previous three occurrences.

Calculations by author. Data sources: Ycharts and Google Finance.

What’s particularly notable is that all of the previous instances (within the past 25 years) have taken place within the past five years. At this point last year, the index was actually performing better, with year-to-date returns of around 16%.

Outside of these results, however, you’d have to go back to 1998 for the last time the index surged by at least 14%. That year, its gains were nearly 17% by the midway point and it would go on to rally by another 8.4% in the next six months.

Interpreting the data

There are a couple of ways to analyze this data, and a lot can ultimately depend on your overall outlook for the market.

The bullish view would be to say that after a strong start to the year, it’s likely that the index will continue to do well in the latter half. The data certainly supports that view. And whatever catalysts have been responsible for the strong start are likely to persist in the second half. Since last year, investors have been excited about artificial intelligence stocks, and that has driven a lot of bullishness in the markets. There’s little reason to believe at this point that the excitement will die down in the months ahead.

Bearish investors, however, would be correct to point out that the data’s sample size isn’t terribly large and perhaps isn’t enough to instill a lot of confidence that the second half will definitely be a strong one for the markets. There simply haven’t been that many times within the past 25 years that stocks have been doing this well. And since 2020, when two of those occurrences took place, there have been a lot of factors weighing on not just the markets but the economy as a whole.

In other words, there’s a lot of noise within those results. If you exclude that data, then the sample size is even smaller. Another consideration is that with the major indexes around record highs and so many strong performances in recent years, valuations may be too inflated, and stocks could be overdue for a sell-off.

What does this mean for investors?

It’s tempting to look at the data and assume that there will be another strong finish to the year. And while that may be the case, it’s also important to remember that even if that does prove to be true, that doesn’t mean every stock will be a good buy. Just like if the data were to suggest that there will probably be a sell-off, that doesn’t mean you should dump everything in your portfolio, either.

Regardless of how hot the markets may be, there will be both overperforming and underperforming stocks. And investors should consider the valuations, fundamentals, and growth prospects of any equities they holding or are looking to buy. By taking into account those factors, you’ll likely end up with a better strategy for not just the second half but the long term as well.

The world’s smartest investors don’t try to time the market because it’s often far better to stay invested in the market rather than trying to time it and guess when it will bottom out and when it will hit a peak. You should, however, always consider if your investing thesis in an individual stock has changed and whether it’s time to change up your position. But buying stocks primarily based on historical performance, trends, or charts can be a risky strategy.