Second half returns tend to be stronger when the first half of the year is strong. Maybe not the most intuitive study of market behavior as I assume most investors would guess the opposite. But the data is pretty clear in the chart below that market returns of greater than 10% in the 1st half of the year lead to bigger 2nd half returns than when 1st half returns are under 10%. Strength leads to more strength.
Source: 3Fourteen Research, as of 7/6/2024
It is surmised that cautious strategists and large speculators create this phenomenon as they continually chase the market higher after large trails in the first half. Whatever the reason, it lines up perfectly with our outlook for a continuation of this bull market and further gains in 2024. What has not happened yet, but we continue to believe will, is a ‘broader’ market rally.
Year to date only 20% of stocks are outperforming the S&P 500. That is the lowest percentage of stocks going back to 1973! An economy that is slowing but growing, inflation moderating, and a job market that is softening is pulling forward expectations for a Fed interest rate cut to September. We believe cuts are the key to unlocking a broader rally. It sure would be nice to see other areas of the stock market join the AI party.
Source: Ned Davis, as of 7/9/2024
Sean Dillon, CMT, CFTe
SVP, Investment Strategy
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