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Declining inflation. A Fed that has pumped the breaks. Artificial intelligence.
These bullish tailwinds helped to manifest one of the best first halves for stocks in recent memory. In fact, the Nasdaq generated an incredible 31.73% run over the last six months, the tech-heavy index’s best first half to a year dating back to 1983. The S&P 500 finished the first half with an impressive 15.91% gain, while the Dow lagged but is currently eyeing a bullish breakout.
This past Friday morning’s release of May’s personal consumption expenditures (PCE) data, the Fed’s preferred inflation gauge, showed prices rose 3.8% on a year-over-year basis. This was down from 4.4% in April and marked the lowest rate since April 2021. For the month, prices ticked up just 0.1%, below the 0.2% projection.
While the market is currently pricing in a roughly 88% chance of another 25-basis point hike later this month, our analysis points to a higher likelihood of another pause. Inflation measures are projected to have declined further in June, which would increase the odds of more market strength in July given the lagging data. But there’s other reasons for the bulls to cheer during this hot summer month.
Reasons to Expect More Strength Ahead
Stocks have risen in 9 out of the last 10 years in July, climbing an average of 3.3%. In fact, no month sports a better average over the last decade than July. The positive seasonality along with the start of the Q2 earnings season have the potential to extend this year’s rally even further.
As we move past July and into the remainder of the year, the picture remains bright. Since 1950, the S&P 500 has followed up a positive first half with an average gain of 6.0%. Even better, when first half gains were 10% or higher (like this year), the index delivered average gains of 7.7% in the second half and was positive in 82% of the occurrences with these characteristics.
Image Source: Zacks Investment Research
These gains won’t be achieved without their fair share of volatility. The average drawdown during second halves given a positive first half has been -9%. First halves that have exceeded 10% (like this year) have historically led to slightly shallower second half drawdowns. As shown below, the average second half drawdown after a greater than (or equal to) 10% first half performance is -8.8%.
Image Source: Zacks Investment Research
It’s important to point out that historical statistics are just a guide. Markets never repeat themselves exactly, but they often rhyme. Even during strong bull markets, it’s never a straight line up. There’s always volatility along the way, and even if the second half goes well, it’s reasonable to expect a correction somewhere in the neighborhood of 8-10%.
Confirmation of a New Bull Market
The S&P 500 re-entered bull market territory in early June, as the blue-chip index took 165 trading days to advance 20% off the October ’22 bear market low. What can we expect moving forward?
Forward returns after a bull market has been confirmed have also been historically appealing. Twelve months after a bull market has officially started (based on the 20% threshold), the S&P 500 has delivered an average gain 18%.
Zooming out further, bull markets have averaged 39.4 months dating back to 1929, and have produced an average gain of 130.1%. The truth is that bull markets are built on the shoulders of bears, and bear markets should be viewed as great buying opportunities. Instead, normally panic ensues, and investors tend to sell at major turning points. Rather, the larger drawdowns should be used for new entries or additional buying points.
Stocks to Watch
Nvidia (NVDA - Free Report) rebounded 3.6% on Friday and edged higher Monday morning. Nvidia stock shrugged off reports from earlier in the week that the Biden administration will expand its chip export curbs to China. Other semiconductor stocks followed suit. NVDA is a Zacks Rank #1 (Strong Buy) and remains in a robust uptrend.
Apple (AAPL - Free Report) finished the week as the first U.S. company valued at $3 trillion. It’s been an incredible run for Apple stock, with shares climbing nearly 50% on the year. AAPL is currently a Zacks Rank #3 (Hold) and is trading at all-time highs.
Tesla (TSLA - Free Report) jumped over 6% Monday morning after second-quarter deliveries surged to 466,140, surpassing the Q1 record of 422,875. The figure easily beat the Q2 estimate of 445,000. Tesla has received criticism for recent price cuts, but the strategy appears to be working well. TSLA is a Zacks Rank #3 (Hold) and has witnessed its shares rise over 128% so far this year.
This market is clearly surprising to the upside. Positive seasonality in July along with the start of the second-quarter earnings season are likely to provide the bulls with more reasons to cheer. From all of us here at Zacks, we wish you a safe and happy July 4th.
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Here's What to Expect for the Second Half of 2023
Declining inflation. A Fed that has pumped the breaks. Artificial intelligence.
These bullish tailwinds helped to manifest one of the best first halves for stocks in recent memory. In fact, the Nasdaq generated an incredible 31.73% run over the last six months, the tech-heavy index’s best first half to a year dating back to 1983. The S&P 500 finished the first half with an impressive 15.91% gain, while the Dow lagged but is currently eyeing a bullish breakout.
This past Friday morning’s release of May’s personal consumption expenditures (PCE) data, the Fed’s preferred inflation gauge, showed prices rose 3.8% on a year-over-year basis. This was down from 4.4% in April and marked the lowest rate since April 2021. For the month, prices ticked up just 0.1%, below the 0.2% projection.
While the market is currently pricing in a roughly 88% chance of another 25-basis point hike later this month, our analysis points to a higher likelihood of another pause. Inflation measures are projected to have declined further in June, which would increase the odds of more market strength in July given the lagging data. But there’s other reasons for the bulls to cheer during this hot summer month.
Reasons to Expect More Strength Ahead
Stocks have risen in 9 out of the last 10 years in July, climbing an average of 3.3%. In fact, no month sports a better average over the last decade than July. The positive seasonality along with the start of the Q2 earnings season have the potential to extend this year’s rally even further.
As we move past July and into the remainder of the year, the picture remains bright. Since 1950, the S&P 500 has followed up a positive first half with an average gain of 6.0%. Even better, when first half gains were 10% or higher (like this year), the index delivered average gains of 7.7% in the second half and was positive in 82% of the occurrences with these characteristics.
Image Source: Zacks Investment Research
These gains won’t be achieved without their fair share of volatility. The average drawdown during second halves given a positive first half has been -9%. First halves that have exceeded 10% (like this year) have historically led to slightly shallower second half drawdowns. As shown below, the average second half drawdown after a greater than (or equal to) 10% first half performance is -8.8%.
Image Source: Zacks Investment Research
It’s important to point out that historical statistics are just a guide. Markets never repeat themselves exactly, but they often rhyme. Even during strong bull markets, it’s never a straight line up. There’s always volatility along the way, and even if the second half goes well, it’s reasonable to expect a correction somewhere in the neighborhood of 8-10%.
Confirmation of a New Bull Market
The S&P 500 re-entered bull market territory in early June, as the blue-chip index took 165 trading days to advance 20% off the October ’22 bear market low. What can we expect moving forward?
Forward returns after a bull market has been confirmed have also been historically appealing. Twelve months after a bull market has officially started (based on the 20% threshold), the S&P 500 has delivered an average gain 18%.
Zooming out further, bull markets have averaged 39.4 months dating back to 1929, and have produced an average gain of 130.1%. The truth is that bull markets are built on the shoulders of bears, and bear markets should be viewed as great buying opportunities. Instead, normally panic ensues, and investors tend to sell at major turning points. Rather, the larger drawdowns should be used for new entries or additional buying points.
Stocks to Watch
Nvidia (NVDA - Free Report) rebounded 3.6% on Friday and edged higher Monday morning. Nvidia stock shrugged off reports from earlier in the week that the Biden administration will expand its chip export curbs to China. Other semiconductor stocks followed suit. NVDA is a Zacks Rank #1 (Strong Buy) and remains in a robust uptrend.
Apple (AAPL - Free Report) finished the week as the first U.S. company valued at $3 trillion. It’s been an incredible run for Apple stock, with shares climbing nearly 50% on the year. AAPL is currently a Zacks Rank #3 (Hold) and is trading at all-time highs.
Tesla (TSLA - Free Report) jumped over 6% Monday morning after second-quarter deliveries surged to 466,140, surpassing the Q1 record of 422,875. The figure easily beat the Q2 estimate of 445,000. Tesla has received criticism for recent price cuts, but the strategy appears to be working well. TSLA is a Zacks Rank #3 (Hold) and has witnessed its shares rise over 128% so far this year.
This market is clearly surprising to the upside. Positive seasonality in July along with the start of the second-quarter earnings season are likely to provide the bulls with more reasons to cheer. From all of us here at Zacks, we wish you a safe and happy July 4th.