Is the S&P 500 Pacing for Bigger Gains in the 2nd Half of 2021?

The SPX gained almost 15% in the first half of 2021

Senior Quantitative Analyst
Jul 7, 2021 at 8:35 AM
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The first half of 2021 could not have been more different than the tumultuous first half of 2020. The S&P 500 Index (SPX) gained nearly 15% in the first six months of the year. Furthermore, if you had bought and then sold the index at the worst possible times in the first half of the year (AKA the maximum drawdown), you would have lost only 4.2% on the trade. This week I’m looking at steady uptrends in the first half and what kind of returns these led to for the rest of the year.

Strong First Half

The S&P 500 gained 14.4% in the first half of the year. That’s good news according to the table below, which suggests the better stocks do in the first half, the better they tend to do in the second half. Going back to 1950, when the SPX gained double-digits in the first half, it averaged a gain of 7.58% in the second half with 81% of the returns positive.

SPX 2nd Half 1

Breaking down those double-digit returns makes the case even more bullish. There were a couple of big outlier returns in 1975 and 1987, when the S&P 500 gained 38% and 25%, respectively. Those years saw significant losses in the second half of the year. When the S&P 500 return in the first half was double digits but below 15%, the index was positive all 11 times averaging an impressive 11% return in the second half.

SPX 2nd Half 2

Small Drawdown

For the first half of 2021, the largest pullback that was just 4.2%, occurring from February 12th through March 4th and representing another impressive stat for the SPX. That is the ninth smallest first-half drawdown for the S&P 500 going back to 1950. The table below tells us what this has meant for the second half of the year. Again, this has been a bullish sign. When the max drawdown was less than 5% in the first half of the year, the index averaged a return of 8% in the second half with over 80% of the returns positive. Otherwise, the S&P 500 has averaged less than 4% for the rest of the year.

SPX 2nd Half 3

Let’s break down those relevant returns just like I did in the first section. The table below separates those 17 returns from the table above into whether the S&P 500 was up by more than 10% or less than 10%. The returns have been good in either case. Looking at the average return, stocks have been better when the index reached 10% in the first half along with the small drawdown (9.77% vs. 5.99%).

SPX 2nd Half 4

In conclusion, a strong, steady first half for stocks has consistently led to more gains in the second half of the year. Let’s hope that trend continues.


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