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Thursday, July 5, 2012

Will the Dow Keep Rising in the Second Half?

Dow
Dow (Photo credit: Thomas Fisher Rare Book Library)
With half the year gone, the Dow Jones Industrial Average (INDEX: ^DJI ) has had a middle-of-the-road year so far, gaining about 5.5%. Although that lags the broader market, with the S&P 500 (INDEX: ^GSPC  ) having risen by more than 8%, it still sets the stage for what could be a quite reasonable overall return for the Dow in 2012.
But with the bull market in stocks having gone on for more than three years now, some investors fear that the second half of 2012 could be a lot less profitable than the first half was. With those concerns in mind, let’s take a look at some of the factors that will determine how the Dow and the overall stock market perform for the rest of the year.
History and the seasonsIf you look solely at historical returns without taking them in the context of any particular year, the evidence is unclear whether the second half would tend to be better than the first. On one hand, the old adage “sell in May and go away” makes it seem as if the second half would be worse than the first, especially since September and October have the worst reputations for losses for the stock market.
But looking back at the past 20 years of S&P 500 data, the stock market has actually done better in the second half on average by a bit more than a percentage point. The rallies that took hold during 2009 and 2010 did a lot to bolster this trend, although last year’s terrible third quarter broke that streak. Relying on seasonal factors without considering other fundamental considerations isn’t a very good idea in any event. ... Continue to read.
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