The first half of 2023 concluded on a bullish note that’s underappreciated by some investors still recovering from the trauma of 2022. I’ve seen headlines in recent days such as: “Is This a New Bull Market or Just a Bear-Market Rally?”

I think super-investor Peter Lynch put it best: “Far more money has been lost by investors trying to anticipate corrections, than lost in the corrections themselves.”

Don’t let the pain of 2022 blind you to the opportunities ahead. History tells us that a strong start to the first six months of a year typically carries over into the rest of the year.

Let’s take a look at the first half of 2023 and see what those movements may portend for the second half.

WATCH THIS VIDEO: The Lonely Bull: Why This Unloved Rally Keeps Going

The S&P 500 officially entered a bull market on June 9. The index had been in bear-market territory for 248 trading days, the longest bear market since the 484 trading days ending on May 15, 1948.

Gains so far this year are in stark contrast to last year’s downturn, where stocks experienced a 20% decline and bonds suffered a 10% loss. A positive outlook on Federal Reserve policy and inflation, coupled with a surprisingly resilient economy, have driven overall market gains year to date.

Stocks racked up a solid performance last week and for H1, as the following chart shows:

Equities have continued the rally that got underway after the bear market nadir in October of the previous year. However, it’s been a bumpy ride along the way, with ups and downs driven by changing expectations surrounding Fed policy.

The worst turmoil occurred in March, when the banking crisis triggered an 8% pullback in the S&P 500. However, after a handful of bankruptcies among regional banks, the sector recovered and the rally resumed.

In Monday’s holiday-shortened session, the main U.S. stock market indices closed higher as follows:

• DJIA: +0.03%
• S&P 500: +0.12%
• NASDAQ: +0.21%
• Russell 2000: +0.43%

The CBOE Volatility Index (VIX) slightly fell. The VIX has steadily declined in recent months and as of this writing hovers at 13.57. A reading below 20 indicates less fear and stress in the market.

Taking a deep breadth…

The most remarkable aspect of the market’s upward trajectory so far has been the resurgence of technology and growth-oriented investments, which were clobbered in the previous year.

The divergence in performance between the tech-heavy NASDAQ and the Dow Jones Industrial Average illustrates this trend. The outperformance of the technology sector has not only propelled the broader indices higher but has been concentrated in a few mega-cap household names.

Alphabet (NSDQ: GOOGL), Amazon (NSDQ: AMZN), Apple (NSDQ: AAPL), Meta Platforms (NSDQ: META), Microsoft (NSDQ: MSFT), Nvidia (NSDQ: NVDA), and Tesla (NSDQ: TSLA) cumulatively posted an average gain of about 85% in the first six months of the year.

The top performer among all 11 S&P 500 sectors for the second quarter was technology. The tech sector racked up a 15.4% return in Q2 to bring its year-to-date return to 40.3%.

Enthusiasm surrounding artificial intelligence (AI) has lit a fire under semiconductor stocks in particular. Chipmaker Nvidia, one of the biggest beneficiaries of the AI frenzy, has risen about 180% so far this year.

Consequently, the broader market’s gains have been relatively narrow. Therein lies a risk for the second half of 2023. If the tech leaders happen to stumble, the rest of the troops are likely to follow.

That said, the New York Stock Exchange Advance/Decline line (NYAD) has been rising and hovers above its 50- and 200-day moving averages, a reassuring sign of improving market breadth.

Longer-term interest rates, specifically the benchmark 10-year Treasury yield, have remained relatively stable this year, which reflects cooling inflation and decelerating economic growth.

The Fed has indicated that it may hike interest rates two more times this year, but the rate environment has been considerably more benign this year compared to 2022. The big test will come in late July, with the next meeting of the policy-making Federal Open Market Committee (FOMC).

After lagging large-cap stocks earlier this year, small caps have rebounded. This trend suggests emerging optimism in the outlook for economic growth. It’s also significant that the analyst consensus calls for a return to corporate earnings growth in the third quarter.

The week ahead…

Keep a close eye on the following economic reports, scheduled for release in the coming days:

S&P flash manufacturing PMI, ISM manufacturing, construction spending (Monday); ADP employment, factory orders, minutes of the FOMC’s June meeting (Wednesday); initial jobless claims, job openings, S&P flash U.S. services PMI, ISM services (Thursday); U.S. employment report and U.S. hourly wages (Friday).

A strong start in the first half of the year often bodes well for the future. With a 15.9% return in H1, the S&P 500 experienced its fifth-best start since 1990. In those four previous instances with a better start, the market recorded an average full-year return of 33%.

Additionally, history shows that when the stock market gained more than 10% in the first half, as it did in 10 of those years since 1990, it rose further in the second half every time.

However, if you’re nervous that the market has gotten ahead of itself, I suggest you consider the advice of my colleague, Jim Pearce.

Jim Pearce is chief investment strategist of our premium service Mayhem Trader. He has spent the past year perfecting a powerful indicator that’s designed to make money from market imbalances.

Jim has a proven knack for reaping profits from Wall Street mayhem. To learn more, click here for details.

John Persinos is the editorial director of Investing Daily.

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