Recession? No recession? Recession?

Aug 01, 2023

The market rally persists, but the debate around a looming recession endures.

Key Takeaways:

  • The S&P500 and NASDAQ both continued to gain in the month of July.
  • The Dow Jones had its longest winning streak since 1987.
  • The inflation report for the month of June showed its smallest increase since March 2021.
  • Unemployment held steady at 3.6%.

As part of our due diligence to clients, we frequently meet with fund managers to exchange notes and discuss investment theses. One recurring observation: few expected 2023 to go the way it has.

I mean sure, 2022's first half results were an anomaly. Declines of that magnitude have occurred less than 3% of the time over the past 304 quarters. But a silver lining of suffering through difficult periods of considerable declines - performance is historically strong thereafter.


After a strong first-half performance, the S&P 500 is historically more likely to rise in the second half and tends to notch bigger advances, according to CFRA analysis.

  • The S&P 500 has gained an average of 4.2% during all second halves since 1945, rising 69% of the time.
  • When the S&P 500 is coming off a first-half gain of 10% or more, the broad index on average adds 8% in the second half and moves higher 82% of the time.

These and similar statistics are in no shortage. It’s the same material we always lean into when reviewing performance with our clients. But it’s easy to get carried away with all the negative headlines, the doom-scrolling, and the incessant reminder that a recession is near. Isn’t that what they’ve been saying since last year?

This is how the talking heads on CNBC have made us feel like for the last year:

 To quote Seneca, “We suffer more often in imagination than in reality”.

Even the smartest of fund managers have been underweight in equities. Timing the market is a fool’s game, and it requires being right twice. Once to move to cash, and again to get back in. But this year’s market rally has left many people behind, and now they’re forced to re-enter the market at higher valuations (which in turn helps further the rise in markets).

The alternative is to continue to call for a recession, waiting for markets to come back down. But we’re seeing firsthand how that has played out.

The S&P 500 Index's first half return of 17% was the second-best start in 25 years, bested only by the 19% gain we saw in the first half of 2019. The results are impressive, considering the events and market sentiment of the first half. Additional rate hikes by the Federal Reserve Bank, unrest in the banking sector, and a consensus view that the United States was on the cusp of an economic recession, could not upset the hard-charging market.

If history is a guide, a good first half is usually followed by a good second half. 


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