One question I am getting a lot now goes like this: “With the market having had such a strong YTD so far, is it over? Time to sell, time to take risk off the table? When the market has a big first half is the party usually over?” Legit question that warrants a data filled answer.
In the last 70 years, there have been 21 observations when the market was up at least +10% through June 30th. The orange line below tracks the history of those observations while the green line tracks 2023 YTD. Two key takeaways:
(1) market strength begets market strength. In the other 21x the market was up at least +10% in the first six months of the year the market finished up an average of +25% for the full year calendar. That’s an average and certainly some years proved outliers (i.e. 1987 = uggh) but a data set is a data set and you include it all. A strong first half usually translates into a strong full year.
(2) a closer look at those other 21x shows the markets also consolidate right around now. History says to expect a trend sideways for a while and then a big finish as all those who get compared against benchmarks chase their lagging performance late in the year.
Don’t be afraid of market strength, embrace it. The other conclusion is that we likely go sideways before we go higher. They don’t call them the dog days of summer for nothing.
PS I can’t wait for Jackson Hole next week. Thursday is 12 hours on white papers on quantitative economic theory. Friday morning Fed chair Powell hopefully hits his pause button on rates. I think white water rafting is Wednesday for those central bankers seeking adventure but I am not sure.
Source: Carson, JonesTrading LLC as of August 16, 2023
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