As of the close on Thursday, there are just four trading days left in the first half of the year. Year-to-date (through 6/23), the S&P 500 (SPX) has gained 12.93%, excluding dividends. It seems that anytime the market has substantial gains during the first half of the year, questions like “How much does it have left in the tank?” or “How much higher can it go?” inevitably arise. Such questions are natural – we’re conditioned to expect a pullback following any significant run-up, and you can usually rely on the financial media to add fuel to the fire. As it turns out, however, historically, when there’s been a solid start to the year, that trend has continued in the second half of the year more often than it has reversed.
Since 1928, when the S&P returned 10% or more during the first half of the year, during the second half of the year, it has posted average and median gains of 5.9% and 9.6%, respectively.
To get a more granular perspective, we have broken out the first half, second half, and calendar year returns for every year in which the S&P 500 returned 10% or more during the first half of the year (displayed in the table below).
We found that since 1928, the S&P has generated a gain of 10% or more during the first half of the year 27 times. Of those 27 years, there have only been seven occasions, slightly more than 25% of the time, when the S&P has followed up a 10%+ gain in the first half of the year with a negative return in the second half of the year. The most recent occurrence was in 1987 when the S&P gained 25.53% during the first half of the year and then lost -18.72% in the second half, which of course, included the Black Monday crash in October. 1987 was the second year in a row that the S&P gained more than 10% in the first half of the year and then returned a negative result for the second half. In 1986, the index posted a gain of 18.72% through the first six months and was then down -3.46% during the second half, finishing the year with a respectable gain of 14.62%.
Only once has the S&P 500 gained more than 10% during the first half of the year and then had a second-half that was bad enough to push it into negative territory for the year. As you may have already guessed, that year was 1929. The S&P was up 12.57% in the first half of ’29 but then lost -21.74% in the second half of the year, which included Black Tuesday and the start of the Great Depression.
In fact, except for 1987 and 1929, which each had historic market meltdowns during October, every year in which the S&P has gained more than 10% during the first half of the year, it has finished the year with a double gain of 10% or more. Outside of ’29 and ’87, the lowest calendar year return for a year that started with a 10%+ gain in the first half was in 1988 when the S&P gained 10.69% to start the year and added 1.54% in the last six months bringing its total gain for the year to 12.40%.
On the other end of the spectrum, there have been 12 times when the S&P gained 10%+ in the first half and followed that up with a double-digit gain in the second half of the year. The S&P just narrowly missed accomplishing this in 2019, when it gained 17.35% in the first half and 9.82% in the second half, just shy of the 10% mark. However, we don’t have to go back much further to find the last time this occurred – in 2013, the index gained 12.63% from January through June and then accelerated, gaining 15.07% in the second half of the year, to finish the year up 29.6%. The best second-half finish, following a 10%+ start, came in 1954, when the market gained 17.73% during the first six months and then gained momentum, adding another 23.18% in the second half, bringing the calendar year return to 45.02%, which is also the best single-year return for the S&P since 1928.
So, while it may provoke worries about a potential second-half hangover, the data shows that historically, a strong performance in the first half of the year has more often continued into the second half.
Chart data provided from Nasdaq Dorsey Wright
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