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Published: Jun 20, 2023 3 min read

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The stock market has had an impressive start to the year. If history is any indication, investors have reason to be optimistic about the last six months of 2023, too.

The S&P 500 index is up about 14.5% so far this year, and a recent analysis by Sam Stovall, chief investment strategist at CFRA, finds that a strong first half of the year in the stock market is highly correlated with gains in the second half.

While that could be true this year, stocks still face significant challenges: a potential recession, the likelihood of more rate hikes from the Federal Reserve, weak corporate earnings, and inverted yield curves in the bond market, which traditionally signal economic weakness. Much of the stock market's rally has also been driven by major names in the tech industry, which has some experts concerned the rally may not last.

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What the stock market analysis found

Stovall found that since 1945, the S&P 500 has risen an average of 5% in the second half of the year when the index recorded a positive return in the first half. Second half gains were more pronounced — closer to 6% — when the index gained 5% or more during the first half of the year. When the first half gains were greater than 10%, gains in the second half were 8% on average — that’s twice the average second-half return of all years.

With this year's S&P 500 gain of nearly 15%, Stovall concludes, "history suggests investors hold onto their hats" since a "stellar" second half of the year may be coming.

Stock market returns are unpredictable

Despite those favorable odds, Stovall cautions that historical performance is never a guarantee when it comes to the stock market. And some experts don’t agree that more gains are on the way.

In a research note this week, for instance, Morgan Stanley strategist Michael Wilson cautioned that a few of the headwinds facing stocks — including the end of pandemic-era government support, a loss of liquidity stemming from the debt ceiling deal and falling inflation leading to lower revenue growth for companies — could depress stock prices in the coming months.

“We find it hard to get on board with the current excitement,” Wilson wrote. “If second half growth re-accelerates as expected, then the bullish narrative being used to support equity prices will be proven correct. If not, many investors may be in for a rude awakening.”

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More from Money:

Can Tech Stocks Keep Driving the Market Rally?

The S&P 500 Is in a Bull Market. Will It Last?

Why the Debt Ceiling Deal Could Actually Hurt Stocks

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