The stock market has been experiencing an extraordinary run, with the S&P 500 index hanging at a record high. This remarkable feat is largely due to the stellar performance of corporate America in the second quarter of this year. Earnings for S&P 500 companies have risen at least 50% year-over-year, the highest growth rate since the second quarter of 2021, according to a note from FactSet.

About 86% of companies that have reported earnings per share (EPS) have delivered above Wall Street estimates. This is higher than the five-year average of 78% and above the 10-year average of 76%. If 86% is the actual number for the quarter, it will mark the highest percentage of S&P 500 companies reporting a positive EPS surprise since the second quarter of 2021 (87%).

However, history suggests that investors should not get too comfortable, especially during mid-term election years. BTIG strategist Jonathan Krinsky notes that the ‘broadening’ in the market has happened, and the vibes are immaculate. Unfortunately, history says don’t get too comfortable as we enter the worst part of the calendar during mid-term election years (August 18th to October 11th).

According to Krinsky’s work on mid-term election years for the markets, the years of 1990, 1998, 2002, 2010, 2014, 2018, and 2022 all saw at least a 7% pullback in the August-October period. 1994 saw a 5% drawdown (down 8% by December). 2006 was the only year to avoid a pullback, but it was down 9% from May-July, so in some ways the market just front-ran the seasonal averages.

In summary, we think this is a very attractive time to pare down risk, or look at hedging broad-based equity exposure as we enter a very difficult part of the calendar, historically speaking. Krinsky warns that investors should be cautious and consider hedging their broad-based equity exposure as we enter a very difficult part of the calendar, historically speaking.

It’s hard to argue with the data, which is cut-and-dried. But at the same time, it’s hard to put too much stock in what history says after the earnings season the market just digested. Corporate America is doing too well financially for investors to simply sell all their stocks and return to the market before the end of the year. Deal in reality; it’s often quite useful.

The S&P 500 (^GSPC) is hanging out at a record high primarily for one reason: Second quarter earnings season has crushed it this summer. The stock market has been experiencing an extraordinary run, with the S&P 500 index hanging at a record high. This remarkable feat is largely due to the stellar performance of corporate America in the second quarter of this year.