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A strong first half of the year has historically resulted in more profits in the second

The first half of 2021 couldn’t have been more different than the turbulent first half of 2020 S&P 500 Index (SPX) rose nearly 15% in the first six months of the year. If you had bought the index at the worst possible times (AKA the maximum drawdown) in the first half of the year and then sold it, you would have only lost 4.2% when trading. This week I’m looking at the steady uptrends in the first half and what returns they brought for the rest of the year.

Strong first half

The S&P 500 gained 14.4% in the first half of the year. That’s good news according to the table below, which suggests that the better they do in the second half, the better they do in the second half. Going back to 1950, when the SPX rose double digits in the first half, it saw an average gain of 7.58% in the second half, with 81% of returns being positive.

SPX 2nd half 1st

The breakdown of those double-digit returns makes things even more bullish. There were some big outlier returns in 1975 and 1987, when the S&P 500 rose 38% and 25%, respectively. During these years there were significant losses in the second half of the year. When the S&P 500 return was in double digits but below 15% for the first half, the index was positive all 11 times and averaged an impressive 11% return for the second half.

SPX 2nd half 2nd

Small drawdown

For the first half of 2021, the largest pullback of only 4.2% from February 12 to March 4the and represents another impressive statistic for the SPX. This is the ninth smallest drawdown in the S&P 500 in the first half of the year since 1950. The following table shows us what this meant for the second half of the year. This was also a bullish sign. When the maximum drawdown was less than 5% in the first half of the year, the index achieved an average return of 8% in the second half of the year, with over 80% of the returns being positive. Otherwise, the S&P 500 averaged less than 4% for the rest of the year.

SPX 2nd half 3rd

Let’s break down those relevant returns just like I did in the first section. The following table separates these 17 returns from the table above, whether the S&P 500 is up more than 10% or less than 10%. The return was good in both cases. Looking at the average return, stocks outperformed when the index hit 10% in the first half, along with the small drawdown (9.77% vs 5.99%).

SPX 2nd half 4th

In summary, it can be said that a strong, stable first half of the year for equities continuously led to further price gains in the second half of the year. Let’s hope this trend continues.


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