50 Stocks to Target For the Rest of the Year

The S&P 500's first-half rally, recovering from a 15% decline to finish over 5% positive, historically correlates with a positive second half, averaging 4.67% with 75% positive returns. Notably, similar recoveries in 2009 and 2016 preceded strong second-half gains. Furthermore, historical analysis suggests that investing in either the top 25 best or worst performing S&P 500 stocks from the first half tends to yield superior second-half returns (averaging 13% and 11% respectively over the last decade) compared to middle-tier stocks, albeit with higher volatility for the extremes.

Analysis

The S&P 500's first-half performance presents a historically bullish setup for the second half of the year. The index's recovery from a 15% intra-period decline to a positive close of over 5% is a rare event, with only two precedents since 1950: 2009 and 2016. Following those occurrences, the S&P 500 posted strong second-half gains of over 20% and 6.7%, respectively. More broadly, historical data indicates that a first-half gain in this range has been followed by an average second-half return of 4.67%, with a 75% positive hit rate. At the individual stock level, analysis reveals that strategies focusing on market extremes have outperformed. Over the past decade, the top 25 best-performing stocks from the first half averaged a 13% return in the second half, while the 25 worst-performing stocks averaged an 11% return. Both of these approaches significantly beat the 7.4% average return for the remaining S&P 500 constituents, though this outperformance was accompanied by higher volatility.

Key Decisions for Investors

• Given the strong historical precedent for second-half gains following a first-half recovery from a double-digit drawdown, investors could consider maintaining a constructive or overweight stance on broad market indices like the S&P 500.
• For satellite portfolios or active stock-picking strategies, the data suggests focusing on either the top 25 momentum leaders or the 25 worst-performing laggards from the first half, as both groups have historically outperformed the middle-tier of the market in the second half.
• Investors pursuing strategies based on these market extremes should acknowledge the associated higher volatility and adjust position sizing or risk management protocols accordingly.