If you’re worried about the markets, this might give you some reason to stay Bulgarian.
The higher it is S&P 500 continues, the more inevitable it is that doubts and questions arise about how long the bullying can last. Investors may wonder if stocks are overvalued, if a bubble is forming, and — most importantly — if it’s time to get out of stocks altogether and move your money to something safer.
Below, I’ll look at how the index has fared historically after posting a strong half-year performance, and whether investors should expect the rally to continue.
Strong starts have been more common in recent years
To see how strong 2024 has been, consider that this is the fourth time in recent years that the index has risen 14% after the first six months of the year. Here’s how he performed in the previous three shows.
| YEAR | January-June Return | The remainder of the year |
|---|---|---|
| 2023 | 15.9% | 7.2% |
| 2021 | 14.4% | 10.9% |
| 2019 | 17.4% | 9.8% |
Calculations according to the author. Data sources: Ycharts and Google Finance.
WIt is particularly notable that all previous cases (within the last 25 years) occurred within the last five years. At this point last year, the index was actually outperforming, with year-to-date returns of around 16%.
However, outside of these results, you have to go back to 1998 for the last time the index rose by at least 14%. That year, its gains were nearly 17% midway through the year, and would go on to grow another 8.4% in the next six months.
Data interpretation
There are several ways to analyze this data, and a lot may ultimately depend on your overall view of the market.
The bullish view would be to say that after a strong start to the year, it is likely that the index will continue to perform well in the second half. The data certainly support this view. And whatever catalyst has been responsible for the strong start is likely to carry over into the second half. Since last year, investors have been excited about AI stocks, and this has fueled a lot of bullishness in the markets. There is little reason to believe at this point that the excitement will die down in the coming months.
Bearish investors, however, would be correct to point out that the sample size of the data is not terribly large and perhaps not enough to instill much confidence that the second half will definitely be a strong one for the markets. There just haven’t been that many times over the past 25 years that stocks have done this well. And since 2020, when two of these events occurred, there have been many factors weighing not only on the markets, but also on the economy as a whole.
In other words, there is a lot of noise within those results. If you exclude that data, then the sample size is even smaller. Another consideration is that with major indexes around record highs and so many strong performances in recent years, valuations may be too inflated and stocks may be overdue for a selloff.
What does this mean for investors?
It’s tempting to look at the data and assume there will be another strong finish to the year. And while that may be the case, it’s also important to remember that even if it proves to be true, it doesn’t mean each share it will be a good buy. Just like if the data suggests that there might be a sell-off, that doesn’t mean you should dump everything in your portfolio.
No matter how hot the markets may be, there will be overperforming and underperforming stocks. And investors should consider the valuations, fundamentals and growth prospects of any stock they hold or are looking to buy. By considering these factors, you will likely end up with a better strategy not only for the second half, but also for the long term.
The smartest investors in the world don’t try to time the market because it’s often much better to stay invested in the market than try to gauge it and wonder when it’s going to bottom and when it’s going to peak. However, you should always consider whether your investment thesis in an individual stock has changed and whether it is time to change your position. But buying stocks based primarily on historical performance, trends or charts can be a risky strategy.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet. The Motley Fool has a disclosure policy.