Back in December, I wrote pieces for both Bull Market Rodeo and Seeking Alpha expressing how I thought stocks would rally in the first quarter. The market was the most oversold it had been in some time, and investor sentiment was the lowest it had been in years. Investors were flocking to bonds and that looked like a good sign for stocks as I expected a shift back to stocks.

The market exceeded my expectations in the first quarter as the S&P jumped 13% and the Nasdaq soared 16.5%. The rally continued into the second quarter and other than a pullback in May, the first half of 2019 has been a great one. In fact, it was the best first half of a year since 1997 for the S&P. The index gained 17.35%.

The Nasdaq gained over 20% in the first half while the Dow moved up 14%. The Russell tacked on 16.2% during the first half. The Russell lost ground in March and May, and the other three indices moved up in five of the first six months with May being the exception.

As well as stocks have performed, there have been several clouds hanging over the market and it has managed to climb the proverbial wall of worry. The ongoing trade war has helped keep things in check, but the potential for a rate cut from the Fed has helped boost investor confidence.

The next round of earnings will start next week, and the aggregate EPS expectation is for a 1% decline for the second quarter. If the decline does in fact occur, it would mark the first time since 2016 that we have seen an earnings decline.

Whether or not the rally can continue through the third quarter is the conversation for another day. For now, I want to focus on the incredible performance the indices and sectors turned in during the first half of the year.

Looking at the 10 main sectors, all of them moved higher during the first six months of 2019, but the performances varied greatly. The worst performing sector was the healthcare sector, which only gained 7.94%. While that isn’t terrible, the top performing sector was the tech sector and it gained 26.77%.

With the tech sector being at the forefront of the trade war, it is somewhat surprising to see such a huge gain. Many of the chip manufacturers have been under pressure as they supply semiconductors to Chinese phone manufacturer Huawei. With Huawei being in the crosshairs of the Trump Administration, the chip companies have had to deal with tremendous uncertainty. The recent announcement of a truce in the tariffs is certainly positive news, but it is hardly enough to call an end to the trade war.

While tech was the clear leader and healthcare was the clear laggard, the other eight sectors were bunched up more tightly. The second worst performer was the energy sector, and it still gained almost 13%. The second best performer was the industrial sector with a gain of 21.42%. If you look at those stats, the range from the top sector to the bottom sector was 18.83%, but the other sectors were clumped in a range that was less than 8.5% points from top to bottom.

As we go into the third quarter, I don’t expect a performance anywhere near as good as what we saw in the first half of the year. Stocks are closer to overbought than they are oversold—at least the majority seem to be based on their weekly charts. The earnings expectations are much lower, and that could actually be a good thing. When the expectations are lower, it provides a lower hurdle for companies to clear. Whether investors are actually prepared to see declines in earnings is a different story.

Right now the momentum is still to the upside and overall market sentiment hasn’t reached extreme levels after the dip in May. I look for the upside momentum to continue at least through the first part of the quarter, but if the sentiment gets overly optimistic and the majority of stocks reach overbought territory, we may see a pullback in the last part of the quarter.