Anticipated shifts in the stock markets during the second half of the year.
The S&P 500 has been on an upward trajectory since the pandemic-induced crash in February/March 2020, with a year-to-date gain of approximately 22.4% as of July 2025. This strong performance in the first half of the year, however, does not guarantee a similarly robust second half, according to Sven Lehmann, fund manager of HQ Trust.
Lehmann, who analysed the historical performance of all first halves since 1872, found that in cases where the first half showed a gain of 10-20%, the S&P 500's second-half performance was slightly lower compared to the rest of the instances in his analysis. The range of results for the second half following a gain of 10-20% in the first half has been quite large, from a gain of 30% to a loss of 20%.
It is important to note that the historical performance of the S&P 500 after first-half gains of 10-20% and following a price drop at the year's start is not explicitly summarised in the analysis. However, some contextual insights can be inferred.
For instance, the S&P 500 saw positive territory for the first time since February after a 6.3% rise fueled by easing tariff concerns and strong earnings, which was the best May performance since 1990. This indicates that early-year declines do not preclude strong rebounds and gains later in the year, supported by fundamentals and sentiment recovery.
Moreover, the fourth quarter has historically been strong for the S&P 500 with an average return of 4.1% from October to December since 1950. This suggests that even after mixed or weak early-year performance, there is potential for positive returns in the latter part of the year.
Lehmann categorised the historical first-half performances into six groups. The S&P 500's first-half performance of 15% ranks as the 26th highest. In 10 instances, the US index (S&P 500) gained more than 20% in the first six months, such as 62.6% in 1933 and 41.8% in 1975. A gain of between 10 and 20% in the first half of the year, as in 2021, has historically led to an average gain of 11.1% in the second half.
However, it is worth noting that the strongest gain in the second half of the year followed a price drop at the beginning, with an average gain of 33.1%. There have been only three instances since 1872 where the second half showed a loss of more than 20%, occurring in 1877, 1932, and 1962.
In conclusion, while year-to-date gains of 10-20% by mid-year often reflect strong momentum trends and can precede continued outperformance in the second half, early-year price drops do not necessarily hinder the market from closing stronger later. The S&P 500 has a history of seasonal strength in the latter part of the year even following volatile or lower starts. It is essential to keep a close watch on market trends and economic indicators to make informed investment decisions.
[1] S&P Dow Jones Indices. (2021). FactSet. [4] Yardeni Research. (2021). Historical S&P 500 Fourth Quarter Returns.
Investors might need to carefully consider their strategies for the second half of the year, given that the S&P 500's historical performance suggests that gains of 10-20% in the first half can be followed by a slightly lower second-half performance, with a range of results ranging from a gain of 30% to a loss of 20%. However, it's important to note that strong fundamentals and sentiment recovery, as well as seasonal strength in the latter part of the year, can potentially offset weaker early-year performance.
