US Stocks Hit High after Coronavirus Crash
A key U.S. stock index has hit a new high despite ongoing concerns about the pandemic’s strong economic impact.
The S & P 500, one of the broadest and most prominent measures in the U.S. market, rose on Tuesday to close at 3,389.78, about three points above its 19-point record in February.
Other US indices have also recovered.
The Nasdaq hit another record high after beating its previous high in June, while the Dow Jones Industrial Average is within about 5% of its February record.
US stocks have been on an upward path since March 23, when the US central bank announced a series of unprecedented economic support measures.
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But when the pandemic set in and markets fell more than 33%, such a rapid market recovery seemed almost unthinkable, said William Delwiche, investment strategist at Baird.
“Even having this conversation right now is remarkable,” he said.
He said the strength and speed of the rebound was especially surprising, given America’s ongoing struggle to contain the coronavirus and ongoing concerns about the economy. The United States saw its sharpest quarterly contraction on record in the three months to July, amid widespread blockades.
“It is not surprising that we had a significant recovery, but that in recent months we have continued to recover… I am surprised that we are having this conversation, ” Mr. Delwiche said.
media captionIn spite of the shrinking economy, US stocks have recovered
Analysts say the recovery is due in part to moves by the Federal Reserve and other stimulus, as well as demand from investors who are confident the economy will heal and see few better opportunities to make money than in stock markets.
While surprising, such a rapid market rebound is unprecedented, said Sam Stovall, chief investment strategist at CFRA Research. According to his calculations, it is actually the third fastest rise to a new high for the S & P after such a deep fall since 1929.
But earnings in the United States have outperformed many other markets. London’S FTSE 100 remains about 20% lower than its January high, while France’S CAC 40 is off 19%.
Japan, which has seen its Nikkei 225 index return to about 4% of its pre-crisis high, has benefited from both aggressive government stimulus and relative success in controlling the virus without mass lockdowns.
Tech stocks drive rally
The unusual strength of America’s rebound comes from its technology companies, such as Apple, Microsoft and Amazon, which have been seen as winners despite the blockages, along with companies in areas such as cloud computing and machine learning.
“We wouldn’t be flirting with all-time highs if it wasn’t for technology,” said Terry Sandven, chief equity strategist at US Bank Wealth Management.
Stocks in the S&P 500 tech sector have risen about 25% so far this year, even as other areas remain flat or negative. The energy sector, for example, has fallen by about 37% since the beginning of January, while finances have fallen by 20%.
Disconnection from the market
Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, said it’s a warning sign for those who want to see the new S&P 500 high as a signal about the overall economy.
“There is a great dispersion between those who have done it right and those who have done it wrong,” he said.
Traders wearing masks work, on the first day of in-person trading since the shutdown during the outbreak of coronavirus disease (COVID-19) on the floor of the New York Stock Exchange in New York
Image caption The New York Stock Exchange reopened for in-person trading in May after closing the trading floor in March
Overall, the S & P 500 has risen about 5% since the beginning of the year.
But of the 500 companies in the index, more than half have stocks trading lower than they were at the beginning of the year, he said. And that’s despite the fact that large companies in the S&P 500 index are better equipped to withstand a slowdown than many smaller companies.
“We have come a long way and there is a lot of optimism and that is worrying,” said Mr. ” if we don’t get what we expect, disappointment is not a good item in the market.”
Sandven said unless the outlook for the overall economy will improve New earnings will be limited.
Political questions, about whether Washington will approve greater economic stimulus and how the U.S. presidential election will unfold, could also mean a bumpy ride for investors, he added.
“There is clearly a lot of optimism in a return to growth in 2021,” Mr. Said, “but there are reasons for caution.”