Future Trends for the Stock Market: Five Key Charts

The US stock market saw a significant surge in the first half of the year, driven by advancements in artificial intelligence and strong economic performance. Traders anticipate that this momentum will continue through the rest of the year.

Since January, the S&P 500 Index has risen by 14%, marking its second-best start to a year in the 21st century. This growth is attributed to a robust economy, improved corporate earnings, and high demand for AI-related companies. Despite signs of economic slowdown, the rally is supported by the Federal Reserve's considerations of rate cuts following a period of stringent monetary tightening.

Historically, a strong first half often leads to further gains in the latter half of the year. However, several uncertainties, such as the upcoming US presidential election and potential interest rate cuts, could impact market performance.

In the first half of 2024, the S&P 500 achieved 31 record-high closes, a feat only surpassed by 2021. The current bull market has added over $16 trillion in market value since October 2022, with the index now nearing 5,500 points.

Tech giants like Nvidia, Microsoft, and Meta have been key contributors to these gains. The information technology sector has advanced by 28%, and communication services by 26% in 2024. Utility stocks have also risen, benefiting from their role in supporting AI-related data centers, while the real estate sector has faced significant challenges due to high interest rates.

Nvidia has been a standout performer, contributing the most to the S&P 500's rally with a 150% return. Other notable performers include Constellation Energy, General Electric, Eli Lilly, and Micron Technology. Conversely, Walgreens Boots Alliance has been the worst performer, dropping by 52%.

In terms of index-point contributions, Nvidia added 218 points, followed by Microsoft, Amazon, Meta, and Apple. Tesla experienced the largest losses, reducing the index by 17 points.

Some strategists caution that the tech stock rally may be overextended, driven by a few high-performing companies. The equal-weight version of the S&P 500, which treats all companies equally regardless of size, has underperformed the market-weighted version by 10 percentage points, the widest margin in history for the first half of a year.

According to stock strategist Jim Paulsen, non-tech companies may drive the next phase of market growth. Historically, equal-weight indices have outperformed market-weighted benchmarks significantly in previous bull runs.

A strong first half for the S&P 500 typically suggests further gains in the second half. Since the 1950s, when the index climbs more than 10% through June, it has a median second-half increase of around 10%. Despite weaker market trends in the first half of presidential election years, 2024 has seen the second-best January-June performance since 1928. This deviation from seasonal patterns indicates a potential pullback of 5% to 8% in the coming weeks, according to Jeffrey Hirsch, editor of the Stock Trader’s Almanac.

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