This stock market indicator has been 92% accurate since 1990. It signals a big move before 2025.

The S&P 500 (^GSPC 0.25%) is up 20% year-to-date on artificial intelligence (AI) enthusiasm, economic resilience and interest rate cuts.

History says the momentum could continue into the remaining months of 2024. The fourth quarter has typically been the strongest quarter for the S&P 500, especially in years when the index posted double-digit returns in the first three quarters (that is, until September).

Since 1990, the S&P 500 has advanced at least 10% in the first three quarters of a dozen different years. In 11 of those 12 years, or 92% of the time, the S&P 500 also produced a positive return in Q4. Read on to learn more.

History says the S&P 500 could move higher in the fourth quarter

The S&P 500 measures the performance of 500 large companies that form the core of the US economy. It is widely regarded as the best benchmark for the domestic stock market due to its scope and diversity.

As noted, the S&P 500 has returned at least 10% in the first three quarters of 12 different years since 1990. The chart below details the index’s Q4 performance in those years.

Data source: YCharts. YTD: year to date.

The chart above contains two important pieces of information. First, since 1990, the S&P 500 has typically produced a positive return in the fourth quarter after posting a double-digit gain in the first three quarters. The only exception to this rule was 2012. That means this stock market indicator was accurate 92% of the time.

Second, the S&P 500 returned to an average of 8% in Q4 after a double-digit gain in the first three quarters. This bodes well for investors as the S&P 500 is currently up 20% year to date and Q3 ends in less than a week. Barring an unforeseen catastrophe, the index should still rise at least 10% year to date on September 30. In this scenario, history says the index will return 8% in the remaining months of 2024.

That said, no stock market indicator is perfect, and past performance is never a guarantee of future results. Furthermore, investors should never put money into the stock market with the expectation of short-term gains.

History says the S&P 500 is headed higher over the long term

There is no guarantee that the S&P 500 will rise before 2025. The index trades at 21.4 times forward earnings, a premium to the five-year average of 19.5 times forward earnings and the 10-year average of 18 times forward earnings. So many stocks are expensive from a historical perspective, meaning bad news about the economy or corporate earnings could trigger a decline.

The S&P 500 is currently trading at 5,720, but several Wall Street analysts expect the index to decline by the end of 2024. The most bearish forecast comes from JPMorgan Chasewhere analysts pegged the index with a year-end target of 4,200. That implies a downside of nearly 27% in the remaining months of 2024. By comparison, the median year-end target among analysts at 14 investment banks is 5,600, implying a downside of 2% in the remaining months of 2024.

Regardless of which way the stock market moves in the short term, investors can confidently assume that the S&P 500 is headed higher in the long term. The index has returned 664% over the past 20 years, which equates to 10.6% annually. That period spans such a wide range of economic and market conditions that similar results are likely over the next 20 years. So the most prudent course of action for investors is to buy quality stocks at reasonable prices and hold onto those stocks as long as the underlying companies remain strong.