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History says stocks are bullish after big first half of the year: Morning Brief
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In the first half of 2024, stocks broke through the wall of concern to deliver another solid set of six-month returns, leading the S&P 500 (^GSPC) for a respectable 14.5% gain and the Nasdaq Composite (^IXIC) for an even bigger win of 18%.
If history is any guide, stock seasonality still favors the bulls in July. In fact, the Nasdaq has closed in the green in 10 of the last 11 Julys.
This optimism also extends to the results for the entire year.
Looking back to 1928, there were 29 years in which the S&P 500 was up 10% or more at the halfway point. By the end of the year, the average gain was 24%.
S&P 500 monthly returns when January through June are up more than 10%
In each of the 12 previous cases of strong starts to the year since 1988, the second half of the year ended positively.
And in every year of the group since 1928, the second and third quarters combined have averaged a 6.1% increase (median 9.6%) — and have been positive 76% of the time.
Amid all these upbeat results, two stock market declines in October — one in 1929 and one in 1987 — paved the way for the two worst second halves of the year overall, with falls of 21.7% and 18.7%, respectively.
While July has a respectable average return of 1.4% (median of 2.3%), the percentage of years with positive returns drops from 83% in the previous month to 59%.
The monthly seasonal pattern shifts from weak in August—with an average gain of 0.4% and a loss rate of 52%—to entirely negative average returns in September and October (although median results remain positive).
Finally, after three months of roughly sideways trends, bullish tailwinds reaccelerate from November through the end of the year — just in time for the Santa Claus Meeting.
Historical seasonality patterns typically account for only about a third of price returns. Large, unexpected catalysts can quickly tip the scales the other way — so we can only sketch out trends. But it turns out that stock seasonality studies have generally worked well in this bull market, despite the AI’s seemingly unique timing.
S&P 500 Seasonality — 1928 to 2023 First 10 days and last 10 days of each month
Separately, BofA studied the first and last 10 trading days of each month since 1928 and found that early July has the highest average of all periods (up 1.5% with positive results 69% of the time), another pattern to watch for this month.
Putting it all together, we can expect more strength in early July before traditional election market patterns take over.
The story continues
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