What history tells us about potential for S&P 500 gains in second half of year

We’re into the second half of 2024. The S&P 500’s performance in the first half of the year has been noteworthy, marking its third consecutive quarterly rise and the sixth in the last seven quarters.

This pattern of growth has spurred optimism about the market’s potential for continued gains in the latter half of the year. Reflecting on historical trends, we glean valuable insights into the possibilities and risks ahead.

The recent performance of Wall Street’s major index mirrors some of its stronger historical periods.

The last time the index enjoyed a more extended series of quarterly gains was between the second quarter of 2020 and the fourth quarter of 2021, when it recorded seven consecutive positive quarters.

This impressive run, however, pales in comparison to the extraordinary streak from the first quarter of 1995 through the second quarter of 1998, where the S&P 500 posted gains for 14 straight quarters.

The extended run in the late 90s was driven by a robust economic environment and the burgeoning tech sector, or as many people describe it as ‘the dot com’ era.’

Similarly, the current market climate is heavily influenced by a surge in tech stocks, driven by AI, prompting comparisons to that earlier period.

Current technology boom

Today’s market observers draw parallels between the late 90s tech boom and the present-day surge in technology stocks.

Companies within the sector have been significant drivers of the recent market gains, buoyed by advancements in AI cloud computing, among other cutting-edge technologies.

This surge has fuelled speculation about whether we are in the early stages of a prolonged tech-driven market expansion or nearing its peak.

Opinions are divided.

Some analysts argue that the current technology wave is still in its infancy, suggesting that there is ample room for growth as innovations continue to unfold and new markets emerge.

This perspective is supported by the ongoing development and adoption of technologies that are expected to revolutionise various industries, from healthcare to finance.

On the flip side, others caution that we might be approaching the latter stages of this growth phase.

They point to elevated valuations and the possibility of regulatory challenges as potential headwinds that could temper further gains. The memory of the dot-com bust in the early 2000s serves as a sobering reminder of how quickly market exuberance can turn to correction.

Market signals

Given these differing viewpoints, investors need to carefully evaluate market signals and broader economic indicators.

The S&P 500’s past performance does offer some lessons.

Prolonged periods of gains can foster a sense of complacency, but history shows that markets are cyclical. As such, it’s essential to stay vigilant and consider both the upside potential and the risks.

One way to approach this is by examining the underlying fundamentals of the companies driving the market’s growth.

Strong earnings, solid balance sheets, and sustainable business models are critical factors that can support continued performance.

Additionally, broader economic conditions, including interest rates, inflation, and employment trends, play a significant role in shaping market dynamics.

Strategic Considerations for Investors

For investors, the key is maintaining a balanced perspective. Diversification across asset classes, sectors, currencies and geographies, remains a cornerstone of sound investment strategy, helping to mitigate risks associated with sector-specific downturns.

While tech stocks may continue to offer attractive opportunities, spreading investments across various sectors can provide a buffer against potential volatility.

The S&P 500’s recent performance is, certainly, encouraging, yet it’s important to approach the second half of the year with a blend of optimism and caution.

Historical trends suggest that prolonged market gains are possible, but they also underscore the importance of staying grounded in fundamental analysis and prudent risk management. By doing so, investors can better position themselves to capitalise on opportunities while safeguarding against potential pitfalls.

Nigel Green is deVere CEO and Founder

Also published on Medium.