Halftime Show

By Jeffrey Cane | Wednesday, June 30

Halftime. “A game of two halves” is a cliché in soccer (or football if you prefer) pointing out that a team’s performance in the first half of a match can be very different than its performance in the second half, with a different outcome as a result. The stock market game is about to enter the second half of 2021, and the bulls are clearly winning – at least for now.

The first half began with a new administration coming into Washington and with the outlook for the pace of Covid-19 vaccinations and the reopening of the U.S. economy still somewhat uncertain. Investors at times seemed more focused on the mania around meme stocks like GameStop and AMC Entertainment than they were on the prospects for economic growth. The Dow Jones Industrial Average ended January down 2%, while the S&P 500 finished off 1.4%.

Since then, however, there has been month after month of gains. The vaccination effort sharply accelerated, trillions of dollars of fiscal stimulus flooded the zone, and “the reopening play” was soon overtaken by actual reopening. While worries about inflation and the Federal Reserve accelerating the timeline for higher interest rates provided a brief pause, investors have recently returned to big tech and growth stocks.

The result was a 14.4% first-half gain in the S&P 500, the strongest since 2019’s 17.4% advance, which was the most since 1998. The Dow Jones Industrial Average is up 12.7% for the first six months of the year, while the Nasdaq Composite is up 12.5%.

The biggest winners in the S&P 500 so far this year are a slew of energy stocks (Marathon Oil, up 104%; Diamondback Energy, up 94%; Devon Energy, up 66%; Occidental Petroleum, up 81%; and EOG Resources up 67%) as well as LB Brands, up 94%, Generac Holdings, up 83%; Nucor, up 81%; Ford Motor up 69%, and Gap up 67%.

What comes next?  Jacob Sonenshine of Barron’s provides some historical guidance:

Since 1979, the S&P 500 has gained 10% or more 14 times during the first half of the year, and the index has gone on to average a 6.3% gain over the second half of the year. What’s more, the index finished the second half of the year higher in 11 of those instances, or 79% of the time.

Even the losses, when they occurred, weren’t all that bad. The S&P 500 dropped 1.9% in the second half of 1983 and 3.5% during the last six months of 1986.

That’s quite a record, but investors were in no mood to celebrate the first half today. A possible pickup in inflation, higher interest rates, and a highly contagious coronavirus variant all still weigh on market sentiment. Stocks ended the day slightly higher in listless trading. The S&P was up just 0.1%-- still, its 34th record close, exceeding the 33 record closes set in 2020. The Dow was up 0.6%; the Nasdaq ended down 0.2%.

In this market of late, “nothing really gets killed, but nothing really does that great,” Andrew Slimmon, a managing director at Morgan Stanley Investment Management, told the Wall Street Journal. “There’s no definable trend.”

DJIA: +0.06% to 34,502.51
S&P 500: +0.01% to 4,297.50
Nasdaq: -0.2% to  -14,503.95

The Hot Stock: Cabot Oil & Gas +7.3%
The Biggest Loser: Hologic -3.1%

Best Sector: Energy +1.2%
Worst Sector: Real Estate -0.8%