Reasons For Optimism In The Second Half Of 2022

While market optimists are scarce these days, there are several historical patterns that provide reasons for optimism as the second half of 2022 gets underway.

“We fully understand the bear case right now and acknowledge optimists are scarce,” noted LPL Financial Equity Strategist Jeffrey Buchbinder. “Based on the market’s track record after sharp downdrafts and favorable seasonal forces in July, we think now may be a good time for those with some dry powder to nibble at this market.”

First, as shown in the chart below, stocks have historically bounced back strongly from big 2-quarter drops as we just experienced. In fact, after a more than 20% drop over 2 quarters (the S&P 500 Index fell 20.6% in the first half of 2022), the average gain the next 2 quarters has been 21.5%.

The average performance over the following year has been 31.4%, which is consistent with the average gain off of a midterm election year low (32%).

While of course we can’t predict that historical pattern will repeat, it certainly helps to understand what stocks have done before.

Another reason to be encouraged that stocks may soon be poised for a rebound is that in recent years July has tended to be a good month for stocks. Over the past decade, the S&P 500 Index has risen an average of 2.5% during July, marginally behind only April and November for the top months over that time period.
The start of a much-anticipated third quarter earnings season, along with the next round of inflation data combined with what we hear from the Fed at the end of this month will go a long way toward determining whether July follows this pattern of stock market gains. Don’t forget, shallow bear markets like we have so far tend to bottom at about 7 months on average. Month seven is July. History seems to be on the bulls’ side.

If you have specific questions related to your own investments or financial planning needs, we welcome you to contact us to set-up time to discuss how we can assist you.

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