History Tells Us Stocks Are Up After Strong First Half: Morning Brief

Here is the summary of today’s Morning Brief, which you can register to receive in your mailbox every morning accompanied by:

Over the first half of 2024, stocks overcame the wall of worries to deliver another round of solid six-month returns, leading the S&P 500 (^GSPC) to a respectable 14.5% gain and the Nasdaq Composite (^IXIC) to an even bigger 18% victory.

If history is any guide, seasonality in stocks continues to favor bulls in July. In fact, the Nasdaq has closed in the green 10 of the last 11 Julys.

This upward trend also extends to annual results.

Since 1928, the S&P 500 has had 29 years of mid-year gains of 10% or more. By year-end, the average gain was 24%.

In each of the 12 previous cases of a good start to the year since 1988, the second half of the year ended positively.

And across the group’s entire history going back to 1928, the second and third quarters combined have averaged a gain of 6.1% (median 9.6%) — and have been green 76% of the time.

Amid all these optimistic results, two stock market crashes in October – one in 1929 and the other in 1987 – paved the way for the two worst-performing second halves of the year, down 21.7% and 18.7% respectively.

While July posted a respectable average return of 1.4% (median of 2.3%), the percentage of years with positive returns fell to 59%, compared to 83% the previous month.

The monthly seasonal pattern shifts from a bleak one in August (with an average gain of 0.4% and a loss rate of 52%) to a downright negative average return in September and October (although median results remain positive).

Finally, after three months of generally sideways trends, the bullish tailwinds accelerate again from November to year-end, just in time for the Santa Claus rally.

Historical seasonality patterns typically account for only a third of price returns. Large, unexpected catalysts can quickly swing the balance the other way – so we can only point to patterns. But it turns out that stock seasonality studies have generally worked well in this bull market, even if AI’s timing seems sui generis.

Separately, BofA looked at the first and last 10 trading days of every month since 1928 and found that the beginning of July has the highest average of any period (up 1.5% with positive results 69% of the time), another pattern to watch this month.

Putting all this together, we might expect a bit more strength in early July before traditional election market patterns take over.

The story continues

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