S&P 500: What History Says About the Second Half

The S&P 500 concluded the first half with a 5.5% gain, prompting historical analysis that indicates a strong precedent for continued momentum. Since 1950, a positive first half has typically led to an average 6.1% second-half gain, with similar performance (6.1% average, 86% positive outcomes) observed when first-half gains were in the 5-10% range. While this suggests a bullish outlook, investors should anticipate potential pullbacks, as the average second-half maximum drawdown is -10.3%, though historically it narrows to -8.4% following first-half gains of 5-10% or more.

Analysis

The S&P 500 concluded the first half with a solid 5.5% gain, establishing a historically bullish precedent for the second half of the year. According to LPL Research data since 1950, first-half gains within the 5-10% range have been followed by an average second-half gain of 6.1%, with such periods ending positive 86% of the time. This suggests a favorable outlook for continued market momentum. However, this optimism is tempered by the expectation of significant interim volatility. The historical average maximum drawdown during the second half is -10.3%, though this moderates to a slightly shallower -8.4% in years that began with first-half gains of 5% or more. The data therefore points to a cautiously optimistic scenario where positive returns are probable, but not without a meaningful market pullback along the way.

Key Decisions for Investors

• Given the strong historical data, investors could consider maintaining a constructive to overweight stance on U.S. equities for the second half.
• Be prepared for interim volatility; the historical average drawdown of -8.4% in similar scenarios suggests that pullbacks should be viewed as potential buying opportunities rather than a reason to de-risk.
• Investors should set expectations for a non-linear market advance, balancing the high probability of a positive finish with the likelihood of at least one significant correction before year-end.