Key points
- The communication services and tech sectors lead the way for gains.
- Analysts are optimistic about the second half of the year.
- Elevated interest rates and slowing economic growth remain risks.
The S&P 500 reached all-time highs in the first half of 2024. It’s on track for its second year of above-average annual gains.
have found ways to offset rising costs and grow earnings. Still, investors face tremendous macroeconomic and geopolitical uncertainty heading into the year’s second half. Some experts urge investors to take a cautious approach to the market.
2024 stock market predictions
The technology and communication services sectors have led this year’s rally. The market rally has also had impressive breadth. Only two of the 11 market sectors have produced negative returns in 2024. The worst-performing sectors are real estate and consumer discretionary.
A solid start to a year for stocks has historically boded well for investors.
Since 1950, the S&P 500 has gained at least 10% through the end of May on 19 occasions. See the chart below for this trend.
S&P 500 returns of 10% or more by the end of May
| YEAR | REST OF YEAR |
|---|---|
| 1950 | 8.8% |
| 1954 | 23.3% |
| 1958 | 25.2% |
| 1961 | 7.5% |
| 1963 | 6.0% |
| 1967 | 8.3% |
| 1975 | -1.1% |
| 1976 | 7.3% |
| 1983 | 1.6% |
| 1985 | 11.5% |
| 1986 | -2.1% |
| 1987 | -14.8% |
| 1989 | 10.3% |
| 1991 | 7.0% |
| 1995 | 15.5% |
| 1997 | 14.4% |
| 1998 | 12.7% |
| 2013 | 13.3% |
| 2021 | 13.4% |
Source: Carson Investment Research, FactSet, June 2024.
The index has averaged an 8.8% gain in the second half of those years, according to Carson Investment Research.
Of course, past performance is never a guarantee of future returns. But history appears to be on the side of the coming quarters.
“Market technicals indicate the S&P 500 can climb to 5,550 in the coming months. However, a review of equity market fundamentals suggests that the upside technical target may be difficult for the index to sustain without improved support from interest rates and corporate earnings,” said John Lynch, chief investment officer for Comerica Wealth Management.
The Fed’s monetary policy
The Federal Reserve’s progress in bringing down inflation was inconsistent in the first half of 2024.
U.S. gross domestic product growth slowed significantly in the first quarter. This rekindled concerns that the U.S. economy could be headed for stagflation or a mild recession.
Since July 2023, the Fed has maintained its highest target fed funds rate range since 2001. The current range still sits between 5.25% and 5.5%. In June, the Federal Open Market Committee guided for just one rate cut in 2024.
The timing of a Federal Reserve pivot from interest rate hikes to rate cuts will be critical. If the Fed cuts rates too soon, it could quickly undo all its progress on inflation. Tight monetary policy could send the economy into a nosedive if it cuts rates too late.
2024 outlook for stocks
U.S. presidential election years have historically been difficult for investors. Since 1952, the S&P 500 has averaged just a 7% annual gain during presidential election years, according to LPL Research.
LPL projects that the S&P 500 gain could rise to 12.2% this year. Incumbents “prime the pump” of the economy by implementing pro-growth policies and fiscal stimulus measures during election years.
S&P 500 forecast
Wall Street analysts are projecting that S&P 500 companies will continue to overcome rising costs. Analysts estimate S&P 500 earnings increased 9.2% year over year in the second quarter. They project another 8.3% in the third quarter and anticipate 17.5% in the fourth.
But the S&P 500’s forward 12-month P/E ratio is 20.3. Its 10-year average forward P/E of 17.8 suggests stock valuations may be stretched.
Most analysts remain optimistic that the S&P 500 will continue advancing. The average analyst price target for the S&P 500 is 5,925.80.
DJIA forecast
The Dow Jones Industrial Average lagged in the first half of 2024.
Many investors are focusing on growth stocks and risk assets rather than blue-chip investments. If that trend continues, it could be bad news for the Dow.
But investors could look to blue-chip stocks for safety if they become concerned about macroeconomic and geopolitical uncertainty.
Nasdaq forecast
Not surprisingly, the Nasdaq has outshined the S&P 500 this year. If everyone continues to buy growth stocks, the Nasdaq rally will continue.
Artificial intelligence chipmaker Nvidia is the best-performing stock in the Nasdaq 100. It has ridden impressive revenue growth numbers with impressive gains this year. If the AI technology investment boom fizzles, Nvidia and the Nasdaq could lag.
Are there any specific sectors expected to outperform in 2024?
Growth stocks have outperformed in 2024. That’s particularly true in the communication services and technology sectors.
But analysts see the energy sector as leading the way forward. They project 17.8% average upside from energy stocks and 16.4% upside for consumer discretionary stocks. Analysts project the most minuscule upside for the utilities sector, at just 2.5%.
“Big Tech remains the most important market sector due to its sheer size and expectation for continued AI-fueled earnings growth,” said Richard Saperstein, chief investment officer at Treasury Partners.“The promise of Big Tech’s AI capabilities is also propelling other stock sectors, such as utilities, which have catapulted higher due to perceived increases in power demand.”
Analysts recommend to overweight tech stocks.
How can investors prepare for 2025?
Many moving parts and unanswered questions exist in the economy and the market.
There are many uncertainties surrounding inflation, interest rates, economic growth and the 2024 election. With so much up in the air, staying informed is the best way to prepare for 2025.
It’s best to monitor economic data, pay attention to Federal Reserve commentary and track election results. Remember to stick to your long-term strategy. That said, you must remain flexible to take advantage of changing conditions.
Frequently asked questions (FAQs)
Inflation, elevated interest rates and election uncertainty are the most significant risks in 2024. For that reason, you should monitor U.S. economic data and election results to stay ahead of market volatility.
So far, the S&P 500 is on track for above-average gains in 2024. The index has historically followed up a solid first-half performance with additional gains in the second half.
Everyone’s portfolio strategy should be unique based on their time horizon, financial goals and risk tolerance. For the rest of this year, economists generally expect a climate of falling inflation, slowing economic growth and loosening monetary policy.
