The first half of 2022 was not the worst ever for equities, but it was bad enough. The S&P 500 posted its largest six-month loss since 1970, dropping 20.6%. The Nasdaq fell by 28.6%, its largest first-half loss since 2008, and the Dow Jones industrial average dropped 15.3%, its worst first-half loss since 1962.
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Investors have been sticking cash under their mattresses or using it to buy Treasury notes in a not-quite-panicked flight to safety. BofA Global Research’s chief investment strategist Michael Hartnett reported a weekly inflow of $62.6 billion to cash in the past week, $2.4 billion to bonds (largest inflow in 14 weeks), $2.1 billion from gold (largest outflow since March 202) and a weekly outflow of $4.6 billion from equities. Hartnett wrote, “[The] [s]imple truth remains [that] H2 [is] most likely to be one of slowing growth & rising rates.”
He also believes that it is too early to anticipate that the Federal Reserve will begin cutting interest rates again in 2023. Markets are already pricing in rate cuts for next year, and the Fed’s target for core PCE inflation of around 2.6% is aggressive.
Hartnett also comments that the “bigger the outflow, [the] bigger the bounce.” Following the great financial crisis of 2008-2009, returns from the S&P 500 had risen by 28% six months after the March 2009 low point in equity inflows. After 12 months, returns were up 43%.
The trick is finding the equities that are going to do their part to repair investors’ portfolios. The following table shows 10 stocks that have outperformed the S&P 500, on average, in the final six months of a year over the past five years. The table data comes from Wilshire Associates, Investors Business Daily and S&P Global Market Intelligence.
| Company | Ticker | YTD Change | Sector | Avg. 2H Performance |
|---|---|---|---|---|
| Qualcomm | QCOM | −28.8% | Tech | 25.7% |
| Paycom | PAYC | −32.5% | Tech | 23.7% |
| EPAM Systems | EPAM | −55.9% | Tech | 23.3% |
| Sherwin-Williams | SHW | −36.4% | Materials | 19.4% |
| Costco | COST | −15.7% | Cons Staples | 18.6% |
| Intuitive Surgical | ISRG | −44.2% | Healthcare | 18.1% |
| NextEra Energy | NEE | −17.0% | Utilities | 17.9% |
| Dover | DOV | −33.2% | Industrials | 17.8% |
| Amphenol | APH | −26.4% | Tech | 17.8% |
| Alphabet | GOOGL | −22.9% | Comm Svcs | 14.4% |
There are four tech stocks on the list, perhaps no surprise given how badly beaten up the sector was in the first half of the year. The other six stocks on the list all came from different sectors.
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