Also consider that if we lower the threshold for a strong first half to 10 percent or greater gains, then the average second-half advance is actually over 7 percent, and stocks have added to first-half gains in the second half 80 percent of the time.
Conclusion
We maintained our year-end fair value estimate on the S&P 500 of 3,000 in our Midyear Outlook 2019 publication. After getting within a whisker of that target on July 3, we acknowledge that this forecast could be interpreted as negative and a reason to sell stocks. While we constantly review our market forecasts and might raise this one at some point, we would emphasize that stocks, or even bonds for that matter, frequently trade above what we would deem as a fair value range for an extended period of time. We are sticking with our market weight equities recommendation and continue to look for opportunities to add on weakness rather than selling into strength. At the same time, should stocks move significantly above our fair value estimate, we may reconsider.
The second half of the year could be a bit bumpy given risks around trade, geopolitics, and reliance on central bank policies. History tells us pullbacks of 5–10 percent are quite common, while corrections of 10 percent or more are not rare by any means. We encourage suitable investors who may be under-invested to use volatility to their advantage to rebalance portfolios.
John Lynch is chief investment strategist at LPL Financial.