Barron's: The Stock Market Has Been on a Tear. History Says It's Time to Get Greedy

Published July, 2019

By Al Root

The S&P 500 rose more than 17% in the first half of 2019. That’s not just a good first-half return, it’s a great annual return. The average annual return for the S&P 500 for the last 87 years, excluding dividends, is about 8%.

Going into the second half of the year, investors have a lot to worry about: a slowing global economy, Federal Reserve decisions on interest rates, a still-simmering trade war, and a presidential election that is starting to heat up. With all that happening, and after such strong gains, maybe investors should take their profits and run.

That isn’t the best idea though, historically speaking. History says investors should actually get more greedy and expect positive returns in the second half of 2019.

When stocks have an above-average first half, like in 2019, the market is about 60% more likely to rise in the second half than it is in the second half of all other years, according to Barron’s analysis. What’s more, the 2019 rise for the S&P is the best first-half gain since 1997, the S&P 500 rose another 9.7%.

Investors do pay attention to presidential campaign cycles because fiscal policy matters, but it isn’t the only factor influencing the stock market. “Based on my conversations with companies, I have a pro-risk view,” said Arun Daniel, a senior fund manager at J O Hambro Capital Management. Daniel is a fundamental-based stock picker who doesn’t see the need to trim positions because of market fears. Daniel sees upside in the second half of 2019 for consumer, industrial, and tech stocks.

Goldman Sachs agrees.

“We remain modestly pro-risk for [the next 12 months],” Goldman portfolio strategy research analyst Christian Mueller-Glissmann wrote in a recent report. “Our economists still think that a [second-half] recovery in global growth is likely.”

More growth is a good thing for stocks, but not everyone is as bullish.

“We pulled down our [S&P 500] earnings forecast to $166 from $171,” said RBC Captial Markets head of equity strategy Lori Calvasina. Still, she left her price target for the S&P unchanged at 2950, “I think cuts from the Fed will allow the multiple to expand a little more than we initially assumed,” she said. Her 2950 target is lower than Yardeni’s, but it still higher than June’s closing level.

Of course, none of this analysis can guarantee the second half of 2019 will look like 1997. it is said, after all, that history doesn’t repeat. But it does rhyme. if nothing else, the market’s history can help investors who are thinking about adding more portfolio risk in the second half sleep a little easier at night.

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