More than a few bottles of champagne were likely cracked on Wall Street as results for the first half of 2023 rolled in. In the first six months of this year, the S&P 500 logged a total return of more than 16%.
No one knows for certain what the second half of the year will bring, but market history suggests that the party may just be getting started.
"Really good first halves like the one we just had tends to lead to outsize performance for the second half of the year," says Ryan Detrick, chief market strategist at the Carson Group.
Detrick's analysis found that the S&P 500 has risen by more than 15% in the first half of 10 calendar years since 1980. The index ended the year higher 10 out of 10 times, with an average full-year gain of 23.8%. The median gain: 27%.
What to expect for the rest of 2023
As any investing prospectus will tell you, past performance is no guarantee of future results. Detrick doesn't think looking back on the last 10 markets that looked like this is a surefire way to know what's going to happen. "It doesn't mean we're going to gain another 16% on the S&P. In fact, I doubt we do that over the second half of this year," he says.
But historical performance is another positive data point in what has been a year of mixed signals for investors, he says.
"There have been discrepancies in what the hard data was saying and what the soft data was saying so far this year," he says. "Soft" data, such as sentiment polls among investors and analysts, "have been saying that people are worried the economy might slip into recession," he adds.
Indeed, at the six-month mark of 2023, Bloomberg compiled second-half market outlooks published by Wall Street strategists. Opinions vary widely among market soothsayers, but in aggregate they expect the S&P 500 to shed 6% from July through December.
Meanwhile, much of the "hard" data that serve as economic yardsticks, such as employment and industrial production numbers, have shown signs of a healthy economy that is "nowhere near recession," Detrick says.
When investors receive mixed messages, you might expect some choppiness in stock prices. Historically, we've arrived at the time of year when exactly that tends to happen, says Sam Stovall, chief investment strategist at CFRA. "We just entered the third quarter, which is historically the worst quarter of the year, August and September in particular," he says. "In fact, September is the only month that has fallen more frequently than it has risen. So we could end up with a volatile third quarter."
If the market does fall over the next few months, don't panic, Stovall says: "That's a reason to buy, rather than bail."
"Because of that strong first half performance, money managers who want to earn their bonus or keep their jobs will be putting the pedal to the metal," he continues, "and likely looking to outperform the market as it approaches the end of the year."
Overall, Detrick says he wouldn't be surprised if the S&P posted a percentage gain in the second half in the high single digits, which would be in keeping with historical averages. Since World War II, the S&P 500 has posted an average second-half gain of 8% following a first-half return of 10% or more, according to CFRA.
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