The S&P 500 just did something for the first time this century. History says the stock market will continue to do so.

The S&P 500 (^GSPC 0.90%) rose 20.8% in the first three quarters of 2024, hitting more than three dozen record highs along the way. That boost was partly due to enthusiasm for AI stocks. The Magnificent Seven accounted for almost half of the growth and Nvidia alone accounted for nearly a quarter of the S&P 500’s gains.

Importantly, this is the first time in the 21st century that the S&P 500 has returned at least 20% in the first three quarters of the year. And history says that momentum could push the index even higher in the fourth quarter.

Here are the important details.

History points to an upside in the S&P 500 through the rest of 2024

The S&P 500 was created in March 1957. Since its inception, the index has returned at least 20% through the third quarter of the year only seven times. This excludes the current year, which has been the index’s best performance so far since 1997.

The chart below details the S&P 500’s year-to-date performance, following a year-to-date (YTD) minimum return of 20% through the third quarter (Q3).

Data source: YCharts. Returns have been rounded to the nearest percentage point.

As shown above, the S&P 500 has averaged a return of 31% in years when the index gained at least 20% in the first three quarters. We can use this information to make an educated guess about the remaining months of 2024.

Specifically, the S&P 500 started the year at 4,770 and advanced about 21% to 5,751. If the index returns 31% in 2024, it would reach 6,249 by December 31. That represents an increase of nearly 9% in the remaining weeks of the fourth quarter.

That result is certainly plausible given that the S&P 500 typically performs best in the fourth quarter due to expectations that holiday spending will boost the economy. But history rarely repeats itself with precision, and past performance is never a guarantee of future results. Ultimately, whether the stock market moves higher or lower in the coming weeks depends largely on investor sentiment.

Many stocks in the S&P 500 trade at historically expensive valuations

The American Association of Individual Investors (AAII) conducts a weekly survey that measures investor sentiment. The latest survey shows investors are predominantly bullish, meaning stocks are expected to rise over the next six months. But bearish sentiment increased in the first week of October after declining in the previous two weeks. This trend could persist if macroeconomic data disappoints.

Several important September data will be announced later this month, including the Consumer Price Index report on October 10, retail sales figures on October 17 and jobs on October 29. In addition, the Bureau of Economic Analysis will release an advanced estimate for third-quarter GDP growth on October 30. Bad news on either front could send the stock market trading lower.

This is especially true because many stocks are historically expensive right now. The S&P 500 currently trades at 26.7 times earnings, a premium to the five-year average of 23.8 times earnings and the 10-year average of 21.7 times earnings.

Not surprisingly, many Wall Street strategists expect the S&P 500 to decline modestly in the coming weeks. The chart below details the year-end targets set by various investment banks and financial institutions. It also shows the implied upside (or downside) based on the S&P 500’s current level of 5,751.

Data source: Yahoo Finance.

As shown above, the median year-end target for the S&P 500 is 5,600, implying a 3% downside from current levels.

With this in mind, investors should hope for the best but prepare for the worst in the rest of 2024. Make decisions with long-term (not short-term) gains in mind. Never buy a stock just because its price is going up. Instead, look for companies with sustainable competitive advantages and look at valuations before buying stocks.