Market halftime report

  • The S&P 500 (SPX) hit new record highs in June
  • SPX on track to register its biggest first-half gain since 1998

Now, that was a ride.

There’s still a half-dozen months to go, but the stock market seems to have packed a year’s worth of action into the first six months of the year.

Despite a rocky May (and a pullback this week), the S&P 500 (SPX) was, as of yesterday, still hanging around the all-time high it established last week:

S&P 500 (SPX), 4/22/19–6/26/19. Near record high despite pullback.

Source: Power E*TRADE

If the month had ended yesterday, the index would have notched a 6.3% gain for June, and a 16.8% year-to-date gain. That’s quite a reversal of fortune from six months ago, when no one knew when, or if, the market would rebound off its December lows.

In fact, the SPX has a good shot of wrapping up one of its 10 strongest Junes since 1960, and if it closes at 2,902.47 or higher, it will top the list:

10 strongest S&P 500 (SPX) Junes, 1960–2019. Strong June, weak July?

Source: Power E*TRADE

Of course, the table also highlights that other strong Junes have often been followed by less-than-stellar Julys—part of a larger anxiety phenomenon currently afflicting some longer-term investors, namely: Is the market doomed to underperformance in the second half?

While the fact that the SPX is positive in the first half of this year shouldn’t be a surprise—the index has gained ground in two-thirds of all H1s since 1960, and this year will make it an even 40 of the past 60—the size of the January–June 2019 rally probably caught most people off guard. Barring a continued pullback today and tomorrow, this will go down as one of the 10 largest H1 gains for the SPX since 1960:

10 strongest S&P 500 (SPX) first-half returns, 1960–2019. Mixed results after strong H1 returns.

Source: Power E*TRADE

The SPX would have to fall below 2,878—around 36 points below yesterday’s close—by Friday to fall out of the top 10. Not impossible by any means, but over the next 48 hours the only thing currently on the market radar likely to have that much of an impact is the announcement of a breakdown in US–China trade negotiations at the G20 summit.

Barring that, we’re probably looking at a strong first half of the year—if not quite as huge as 1975 and 1987, which were followed by poor and horrible second halves, respectively. In fact, four of the H2s that followed the five-strongest H1s were negative. But it’s also true that none of the second halves in the remainder of the table—and that’s the tier that will probably include 2019—was a loser.

Overall, though, positive H1s have usually been followed by positive second halves: Of the 30 in-the-green H1s since 1960, only nine were followed by negative H2s.

Trade and Fed actions in the coming days and weeks will have a good chance of determining the tenor of H2 2019. So, while the first half isn’t necessarily implying anything definitive about the market’s direction in the second half, there’s a pretty good chance we won’t see the type of one-way market (up or down) we experienced the first four months of this year.

In other words, there’s a good chance it will be a trader’s market.

Today’s numbers (all times ET): GDP (8:30 a.m.), Corporate Profits (8:30 a.m.), Pending Home Sales Index (10 a.m.), EIA Natural Gas Report (10:30 a.m.).

Today’s earnings include: Accenture (ACN), Conagra (CAG), McCormick (MKC), Walgreens Boots Alliance (WBA), NIKE (NKE).

Today’s IPOs include: Change Healthcare (CHNG), Morphic Holding (MORF), Priam Properties (PRMI), BridgeBio Pharma (BBIO).


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