The mood in the market is overwhelmingly bullish — but that wasn’t the case just six months earlier.

• Wall Street analysts entered the year expecting the S&P 500 to be flat in 2023 — just for markets to rip higher in the face of their estimates.
• To start the year, 42 analysts predicted the S&P 500 would finish at 4.2K by the end of 2023. The S&P 500 is now 6% above that.

History says… Since the early 1950s, when the S&P 500 rose over 10% in the first half, it went up another median of 10% in the second half, per Carson Group’s Chief Market Strategist Ryan Detrick (BBG) — expecting markets to move higher as long as the US avoids a recession.

Uncertainties going into the second half

1/ Recession when? If at all? “Ladies and Gentleman, the recession has been cancelled!” — per a note by Economic Outlook Group’s chief global economist last week.

• Economic data continues to come in better than expected, employment remains strong, and the housing market continues to hold steady.

2/ Fed to raise rates again or not? Despite pausing last month, the Fed reiterated that more rate hikes are coming (two expected) — keeping a lid on potential returns.

• The higher interest rates go, the higher the odds that the Fed will break the economy — pushing the US into a recession.

3/ What to do with all that cash? A near-record level of cash is sitting in money market funds with yields as high as 5%. And Wall Street is looking closely to see whether it’ll flow into stocks.

• Those who “missed out on the rally may feel like they need to start buying stocks. This is more fuel for the bull market.” — per Strategas Securities managing director (BBG).

What’s missing from the market? The S&P 500 isn’t cheap at an 18.8x forward price-to-earnings multiple — higher than its 10-year 17.4x average.

And some are looking for corporate earnings to catch up or returns to broaden beyond the tech giants — before markets can continue to rise.