That Bad First Half Leads to a Decent Final Quarter, History Suggests

OK, all you calendar-focused investors: that lousy first half of 2022 may be the worst of it, with the possibility of a positive fourth quarter. That’s the analysis of CFRA’s chief investment strategist, Sam Stovall, encompassing market performance in the 10 prior negative first halves since World War II.

In the postwar era and not including 2022, there were 10 years that featured first-half declines, his CFRA research report shows. What happened after these weak periods? For the worst-performing five years, the S&P 500 fell an additional 6.8% on average in the third quarter. The rest fell around 2%. Historically, the third period is the most volatile.

But things tend to pick up in the fourth quarter, with stock prices rising between 3.0% and 4.3%. Even more encouraging, in mid-term election years, the bad-first-half years saw a 9.4% average gain. They never once had a negative result. Of course, whether that phenomenon kicks in for this year’s final quarter, given all the economic woes these days, is anyone’s guess.

This year, Stovall wrote in his report, “despite a likely near-term relief rally, stocks should again feel pressure from an expected slowdown in economic activity, resulting in a reduction in [earnings-per-share] growth projections.”

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By this year’s final quarter, “this market may pivot on the forecast for a shallower-than-expected recession, aided by declining inflation projections, and, as a result, a less hawkish Federal Reserve,” he wrote.

Bear markets typically last about a year, which means we are halfway through the down cycle. “History also reminds us,” Stovall noted, “that new S&P 500 bull markets typically started three months after the end of the bear.” And since World War II, he went on, they rose an average 40% in the 12 months after the market hit bottom.

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Tags: Bear Market, CFRA, first half, mid-term election years, S&P 500, Sam Stovall, Stocks

Norges Bank Investment Management, which runs Norway’s $1.2 trillion sovereign wealth fund, has named Daniel Balthasar and Pedro Furtado Reis as co-CIOs of equities, effective July 1.

The two will be responsible for company investments, including internal equity and credit security selection. They succeed Petter Johnsen, who announced in May that he was stepping down as chief equities officer.

“They are both brilliant professionals who impress me a lot with their deep knowledge about equity markets,” Nicolai Tangen, CEO of Norges Bank Investment Management, said in a statement. “In addition, they are remarkable, yet humble leaders, who care deeply about their people. I think they will be an excellent addition to our leader group.”

Balthasar joined Norway’s Government Pension Fund in 2006 as a portfolio manager, and rose to head of basic industries and autos in 2014, a role he held through the end of 2020 when he was promoted to global co-head of sector strategies with Furtado Reis. Furtado Reis joined Norges Bank Investment Management in 2011, also as a portfolio manager, and was promoted to senior portfolio manager and head of banks in 2014, a position he held until he was appointed global co-head of sector strategies.

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“Under Petter Johnsen’s leadership, the team has delivered excellent returns,” Balthasar said in a statement. “Going forward, we want to keep a strong focus on investment process and the quality of decision-making. Also, we want to ensure we utilize tools and resources in the best possible way.”

Meanwhile, Norges Bank, Norway’s central bank, which approves which companies the pension fund can invest in, has decided to place Supermax Corporation under observation, revoke the exclusion of IJM Corporation and end active ownership of AngloGold Ashanti Ltd.

The central bank’s executive board decided to place rubber glove maker Supermax under observation for a period of two years due to what it called in a news release an “unacceptable risk that the company contributes to serious violations of human rights.” Norges’ Council on Ethics recommended excluding the company; however, observation may be decided when there is doubt as to whether the conditions for exclusion are met, or where observation is deemed appropriate for other reasons.

The executive board made the assessment that the company’s announced measures to improve living and working conditions for migrant workers leave uncertainty about future developments, and that the observation period gives the council an opportunity to find out whether the measures sufficiently reduce the risk of violations.

The Council on Ethics cited news reports going back to 2019 about poor living and working conditions of the company’s employees. Allegations include the payment of high recruitment fees, long working hours, an elaborate system of punishments and fines and restrictions on workers’ freedom of movement. Although the company denies any abuse has taken place and claims that living and working conditions are good, it said it will implement measures to improve living and working conditions and ensure that its workers do not pay recruitment fees.

The executive board has also decided to revoke the exclusion of Malaysian conglomerate IJM Corporation, which had been excluded since 2015 due to the “unacceptable risk” that it was responsible for serious environmental damage through its conversion of tropical forest into oil palm plantations in Indonesia.

However, IJM divested its stake in its plantations business in 2021 and is no longer involved in the development and operation of plantations, so the council said the grounds for exclusion no longer exist.

The bank’s executive board also decided to end active ownership in mining company AngloGold Ashanti. In 2012, the Council on Ethics recommended excluding the company due to “unacceptable risk that the company contributes to serious environmental damage and serious violations of human rights as a result of Norges Bank Investment Management, which runs Norway’s $1.2 trillion sovereign wealth fund, has named Daniel Balthasar and Pedro Furtado Reis as co-CIOs of equities, effective July 1.

The bank’s executive board also decided to end active ownership in mining company AngloGold Ashanti. In 2012, the Council on Ethics recommended excluding the company due to “unacceptable risk that the company contributes to serious environmental damage and serious violations of human rights as a result of the company’s activities related to two goldmines in Ghana.”

But rather than exclude the company, Norway’s Ministry of Finance decided in 2013 to address the matter with the company through special active ownership over a period of five years. In 2018, the executive board decided to extend the active ownership by three more years to be able to work toward reducing the risk even further.

The news release from the board says that based on the measures and the further development of the mining activities since 2012, the risk in terms of future developments appear to have been reduced, and so it decided to end the special active ownership. “Going forward, the company will be followed up through ordinary ownership activities,” says the release.

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