Tepid Second Half Likely Following Flat First Half
By: Christopher Mistal
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July 14, 2015
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At the midway point this year DJIA was down 1.1% and S&P 500, was essentially unchanged with a fractional gain of 0.2%. Last year the market was in a similar position at the midway point. DJIA was up just 1.5% and S&P 500 was up 6.1%. In the second half of 2014, DJIA climbed 5.9% from the end of June to the end of December and finished the year up 7.5%. S&P 500 added an additional 5% and finished 2014 with a respectable 11.4% full-year gain. However, this type of first-half performance is not all that uncommon. In 65 years since 1950, DJIA has been flat (defined as down less than 5% or up less than 5%) 21 times. Within these 21 years, S&P 500 was also flat 15 times.
 
[Flat First Halves since 1950 Table]
 
Following flat first halves, full-month July performance was well above average at 1.9%. In all Julys since 1950, DJIA and S&P 500 averaged gains of 1.2% and 1.0% respectively. However, after July’s surge the market then tended to drift sideways to lower from August through the end of October. At which time a mild fourth quarter rally pulled the market modestly higher. Were the market to follow the flat-first-half pattern to yearend, 2015 would be a well below average pre-election year.
 
[Flat First Halves One-Year Seasonal Pattern since 1950]
[Flat First Halves One-Year Seasonal Pattern since 1950]
 
All things considered, the market has shown incredible resilience this year. First quarter GDP was negative, Greece is still struggling with its debts and bailout terms, dragging the Euro zone and its currency lower, China’s stock market hit a ceiling and tumbled dragging hopes of a soft economic landing there lower, plus the Fed would also like to raise interest rates sometime in the near future. This has created uncertainty in the near-term however; beyond this is the prospect of improving economic growth and corporate profits helping the market hold its ground, at least for now.