This stock market indicator has been 100% accurate since 1964. It signals a major move in the second half of 2024.

of S&P 500 (^GSPC 0.54%) widely regarded as the best barometer for the overall US stock market due to its breadth and diversity. The index measures the performance of 500 large companies covering 80% of US stocks by market capitalization.

The S&P 500 advanced 14% during the first half of 2024, beating the historical average of 5%, and one stock market indicator says the index will move even higher in the coming months. Specifically, during presidential election years involving an incumbent (a president running for re-election), the S&P 500 has always — 100% of the time — generated a positive return in the second half of the year.

Here’s what investors need to know.

Story says S&P 500 could rise 11% in second half of 2024

There have been 16 presidential elections since the S&P 500’s inception in 1957, half of which involved an incumbent president running for a second term. As mentioned, the index has always been a profitable investment during the second half of election years including an incumbent president, regardless of which presidential candidate won the election.

The chart below shows the return of the S&P 500 in the second half of each presidential election year. Re-election years (years in which a president ran for re-election) are marked with an asterisk.

Data source: YCharts. The table shows the return of the S&P 500 in the second half of all presidential election years since the index’s inception in 1957. Stars indicate re-election years, meaning an incumbent president was running for a second term.

As shown above, during presidential election years, the S&P 500 returned an average of 4% during the second half. However, if the results are restricted to years when an incumbent president was running for re-election, such as Joe Biden in 2024, the S&P 500 returned an average of 11% during the second half.

This may sound contrived, but Jeff Buchbinder at LPL Financial offered this logical explanation in a recent blog post. “We believe this pattern is due in part to priming the pump ahead of the election with fiscal stimulus and pro-growth regulatory policies to stave off potential recession and encourage job growth.” However, he also noted that Biden has limited options to prime the pump given that Republicans control the House.

Regardless, history says the S&P 500 could return roughly 11% in the second half of 2024. The index has already advanced 2% in July, implying a 9% gain through December.

That said, past results are never a guarantee of future returns. Macroeconomic fundamentals will ultimately determine how the stock market performs in the remaining months of 2024.

History says that the S&P 500 can rise when the Federal Reserve cuts interest rates

Wall Street will closely monitor labor market and inflation data in the coming months, looking for evidence that the economy is headed for a soft downturn, a scenario in which the Federal Reserve returns inflation to its 2 %, without putting the economy into a recession.

In June 2022, inflation hit a four-decade high of 9.8% due to supply chain disruptions and stimulus programs related to Covid-19. The Federal Reserve responded with its most aggressive rate hike cycle since the early 1980s, and the federal funds rate is now at a 23-year high. This is potentially problematic for the stock market because consumers and businesses spend less when borrowing costs rise, which holds back corporate earnings growth.

On the bright side, inflation fell to 3.3% in May 2024. But price pressures have not eased enough to warrant the long-awaited easing cycle (a period when the Federal Reserve is cutting interest rates). So investors hope inflation will continue to trend toward its 2% target, while other data points — such as job openings and unemployment — point to a gradually cooling but still healthy economy.

In this scenario, the Federal Reserve could cut interest rates later this year and the economy could also avoid a recession. Such a resolution has historically been good news for the stock market. During the seven easing cycles since 1987, the S&P 500 returned an average of 6% over the 12 months after the first rate cut. But the average return was 16% over that 12-month period if the economy avoided a recession.

Investors should focus on long-term gains, not short-term movements in the stock market

Investors can put money to work in the stock market today knowing that history is on their side. Indeed, the S&P 500 will return 11% during the second half of 2024 if its performance exactly matches its historical average. Of course, no stock market indicator is infallible, so investors should be aware of the risks.

If the Federal Reserve keeps interest rates high during the remaining months of the year, or if the economy slips into a recession, the S&P 500 could easily fall in the second half of 2024. Therefore, investors should hold off on buying and holding strategies aimed at capturing long-term capital gains.