Stocks have surged through April in their best start to a year in 32 years.
But, markets don’t have a good track record of following up on a rally of that size.
“There are four other years since World War II that the S&P was up at least 15% to kick off the year like we’re going to be this year. Three of those years are virtually flat during these worst six months of the year, the other was 1987 when we lost about 13%, ” said Ryan Detrick, senior market strategist at LPL Financial, on CNBC’s “Trading Nation ” on Tuesday.
The S&P 500 has roared nearly 18% higher in the first four months of the year. Stocks last had that kind of run in 1987 when the S&P rallied 19% through to April before crashing 13% in the following six months, the bulk during the Black Monday market crash that October. The previous three times – in 1983, 1975 and 1967 – markets were largely flat in six months after an early year surge.
“It does seem if you have some really good gains that kick off a year, it can be kind of front-ended and you can have potentially a little bit worse returns over these worst six months of the year,” said Detrick. “Fundamentally things still look good … so maybe we can get a little bit of consolidation and a well-deserved correction after a really good bounce to kick off this year.”
That doesn’t mean that stocks will end with a negative return over the next six months, said Detrick. On average, stocks end higher during this stretch, albeit with a smaller gain than other periods.
“When you get to it, from May to Halloween, those six months, those are the weakest six months on average since 1950 with the S&P 500 up about 1.5%, but it’s still positive,” said Detrick. By comparison, the stretch from November to April typically has an average 7% return.
Still, even if the stock market’s course gets bumpy over the next six months, Detrick maintains his long bullish case.
“If the economic data continues to be strong we would personally use that 10% correction to kind of get into things like value which has been doing a little bit better with the steepening yield curve helping financials specifically,” said Detrick. “Maybe we can get everyone all feared up and bearish again on a well-deserved break here and the economy looks strong for the second half of the year … it very well could be that buying opportunity and then rise into the end of the year.”