The S&P 500 has gained 10% or more 14 times in the first half of the year since 1979.
Bloomberg/Michael Nagle
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The
S&P 500 Index
is on track to have its finest first half since the dot-com era. If the stock market continues to increase, don’t be shocked. As the month of June draws to a close,
S&P 500 Index
Looks like the first half of 2021 will end with a gain of more than 14%. Only the 17.35 percent increase in the first half of 2019 has been higher since 1998.
The market received a boost from Covid-19 vaccines, which have helped the US economy reopen, as well as trillions of dollars in fiscal stimulus. Even as concerns about inflation grew, talk that the Federal Reserve might be obliged to take action to slow the boom persisted.
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Concerns have been voiced that the market has gotten overly comfortable as a result of large gains and a more aggressive Fed. If inflation remains high for a long time, the central bank may be forced to act more swiftly than the market anticipates, causing stock prices to plummet. Others are concerned that U.S. economic growth could drop faster than investors expect, producing a market correction. There is no better moment than now for individuals who have that viewpoint to exit the stock market. The evidence from history says different. The S&P 500 has gained 10% or more 14 times in the first half of the year since 1979, while the index has averaged a 6.3 percent gain in the second half of the year. Furthermore, the index ended the second half of the year on a positive note. In 11 of those cases, or 79 percent of the time, the answer was yes. Even the losses weren’t all that horrible when they happened. In the second half of 1983, the S&P 500 fell 1.9 percent, and in the last six months of 1986, it fell 3.5 percent. The only time this happened was in the latter six months of 1987, when the index dropped 19% in the second half of the year. That time period includes Black Monday, when the S&P 500 fell 20% in a single day, a new low. While selling tied to so-called portfolio insurance was eventually blamed for the extent and speed of the loss, the second half of 1987, like the first half of 2021, was characterized by rising bond yields and lofty stock-market valuations. Still, the market appears to want to go higher rather than lower. Pullbacks, which are common throughout bull markets, have been light in 2021, with the highest fall being less than 4%. “What the [S&amp The S&P 500’s full-year gain would be roughly 23% if it rose 6.3 percent on average in the second half. According to Tom Lee of Fundstrat, this would be a “textbook [market] recovery” after a recession.
At least for the time being, the path of least resistance is higher.
Jacob Sonenshine can be reached at jacob.sonenshine@barrons.com./n
