If history repeats itself, stocks will be short lived in July

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LONDON, July 6 (Reuters) – If history is any indication of the future, the first two weeks of July could bring some relief to investors after a grueling first half of the year.

World equities have lost more than $20 trillion in value since hitting record highs in January.

Most major markets are firmly entrenched in bear market territory as policymakers struggle to contain rising inflation without crushing fledgling growth.

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However, the half-month price changes since 1930 show that the first two weeks of July have historically offered the best returns of the year for the S&P 500. (.SPX) investors.

After three consecutive quarters of declines for S&P 500 stocks, with the index falling 20% ​​since the beginning of the year, some investors said they are ready to buy the dip. The S&P 500 is up 0.16% so far this month.

While volatility remains a drag on global equities, a JP Morgan survey found that two-thirds of investors are likely to increase their equity exposure in July.

History offers ground for near-term hope amid a bleak background for equities, said Paul O’Connor, chief of multi-assets at Janus Henderson Investors.

“We’re seeing a record discount, we’re seeing a really big rebalancing of stocks, probably… in Europe and the US. Obviously just because we’ve had such a big drop in stocks,” he said.

In the last week of June, another $5.8 billion exited global equities, with outflows from developed stock markets outpacing emerging markets, BofA figures show.

NO PLACE TO HIDE

The first six months of the year were brutal for investors. Goldman Sachs analysts said a 60/40 portfolio strategy, which follows a standard portfolio technique of holding 60% of its assets in equities and 40% in fixed income, posted the worst first-half return since 1932, falling 17%.

UBS suggested using stock sell-offs and volatility to selectively build long-term positions.

In a high inflation environment, the Swiss bank said value stocks, including energy and UK equities (.FTSE) continue to outperform, especially as confidence grows that corporate earnings can remain resilient.

But market participants are advising caution ahead of a stormy few months for risky assets amid rising interest rates and concerns about economic growth.

Fears of a recession, rising costs of living are keeping consumers wary, while rising natural gas prices and a slew of economic indicators have rekindled concerns about the health of the global economy.

“The problem is that if we look beyond that[fourteen-day window]things look awkward,” O’Connor said. His team will use every possible season increase in July to sell in the rally.

Both UBS and Goldman Sachs advised building protection against a potential economic slump, which would weaken corporate earnings expectations.

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Reporting by Joice Alves; edit by Jason Neely

Our standards: The Thomson Reuters Trust Principles.

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