Stocktake: Investors eye second-half gains

First half of 2021 was unusually strong for stocks, with new records in Europe

History suggests stocks can continue to gain, but a bumpier ride may be in store. File photograph: Getty Images

History suggests stocks can continue to gain, but a bumpier ride may be in store. File photograph: Getty Images

 

The first half of 2021 has been an unusually strong one for stocks. Is the second half likely to be trickier?

Investors certainly have reason to be pleased by the first-half performance. In Europe, the S&P Europe 350 set new records in April, May and June, and is up 16 per cent year-to-date. In the United States, the S&P 500 has fared similarly well, enjoying its second-best first-half performance since 1998.

The assumption that what goes up must come down is not supported by LPL Research data. A strong first half of the year is usually followed by a strong second half; median gains jump to 9.7 per cent, almost twice as high as the median six-month return of 5 per cent.

That said, it wouldn’t be surprising if markets endure a few nervy moments. The S&P 500’s biggest peak-to-trough pullback in 2021 was a mere 4.2 per cent, notes Bespoke Investment, with the index not recording a 5 per cent pullback since October.

Such calm is not common. JPMorgan’s quarterly Guide to the Markets shows that over the past 41 years, the index has suffered an average fall of 14.3 per cent during the course of the year.

In other words, history suggests stocks can continue to gain, but a bumpier ride may well be in store.

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