Year-to-date (YTD) through 6/23/22, the S&P 500 posted the third worst first-half return since 1932, observes Sam Stovall, chief investment strategist for CFRA Research, in the firm's flagship newsletter, The Outlook.

History warned us that 2022 would be a challenging year, but we didn’t know just how far prices would fall as a result of soaring inflation, a new rate-tightening cycle, a Russian invasion of Ukraine, an ongoing supply chain disruption, and a possible recession.

YTD through June 23, the S&P 500 declined 20.4%, along with all sizes, styles, and 10 of 11 sectors in the S&P 1500, as well as 84% of its sub-industries. Leading sectors included consumer staples, energy (the only gainer), health care, and utilities, while communication services and consumer discretionary fell the furthest.

As for the second half, history says, but does not guarantee, that it may be a tale of two quarters. Historically, Q3 has been the most volatile and only the second average decliner (along with Q2) in the 16-quarter presidential cycle. Since 1990, the S&P 500 fell in price during Q3 in all mid-term election years, along with all sizes, styles, eight of 11 sectors, and 86% of sub-industries.

This year, stocks should feel pressure from an expected slowdown in economic activity, resulting in a reduction in EPS growth projections. However, Q4 (along with the first two quarters of the following year) has been the strongest of all 16 quarters.

By Q4 of this year, 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 Fed. History also reminds us that new S&P 500 bull markets typically start three months after the end of the bear and jump an average of 40% in the 12 months after bear bottoms since WWII.

Representative companies from this list of S&P 500 sub-industries with the highest Q3 returns in mid-term election years are: Philip Morris (PM), HCA Healthcare (HCA), Pfizer (PFE), Tandem Diabetes Care (TNDM), Patterson Companies (PDCO), Align Technology (ALGN), Walgreens Boots Alliance (WBA), and Consolidated Communications Holdings (CNSL).

Subscribe to CFRA Research's The Outlook here…