U.S. stocks set new record high, erasing pandemic-induced losses
Wall Street has clawed back the last of the frenzied losses unleashed by the pandemic: The Standard & Poor’s 500 index closed Tuesday at a new high.
The day’s move was a relatively mild one, nudging the index up 7.79 points, or 0.2%, to 3,389.78. That eclipses the S&P 500′s previous record closing high of 3,386.15, which was set Feb. 19, before the COVID-19 pandemic shut down businesses around the world and knocked economies into their worst recessions in decades.
The S&P 500′s milestone caps a furious, 51.5% rally that began in late March. The index, which is the benchmark for many stock funds at the heart of 401(k) plans, is now up nearly 5% for the year.
The stock market’s sprint also means that the nearly 34% plunge that the S&P 500 took from Feb. 19 through March 23 was the quickest bear market on record, clocking in at just a month. The average bear market has taken 19.6 months to bottom out, according to S&P Dow Jones Indices.
Tremendous amounts of aid from the Federal Reserve and Congress helped launch the rally, which climbed on signs of budding growth in the economy. More recently, blowout corporate profit reports from technology giants such as Apple and Microsoft, as well as earnings from harder-hit industries that weren’t as bad as expected, have helped boost stock prices.
On Tuesday, the Dow Jones industrial average slipped 66.84 points, or 0.2%, to 27,778.07. It remains 6% below its February record high. The Nasdaq composite already had erased its pandemic-induced losses, thanks to huge gains by the big tech stocks that dominate it. It set a new record high Tuesday, climbing 81.12 points, or 0.7%, to 11,210.84.
The lightning-fast recovery is even more notable considering how much the economy is still struggling and how uncertain the path ahead remains. Millions of Americans are continuing to get unemployment benefits, and swaths of businesses nationwide are still shut. COVID-19 continues to spread throughout the world, with more than 5.4 million known cases and 170,000 deaths in the United States alone.
Many investors acknowledge the disconnect between the stock market and the broader economy, but they say the rally has been built on top of several supports.
Key among them is that the Federal Reserve and Congress have plowed trillions of dollars into the economy to keep it from plunging even more deeply and to prevent a full-blown financial crisis. Their unprecedented moves helped halt the S&P 500’s free fall in March.
More recently, the feeling motivating the stock market’s rally has morphed from relief (that the worst-case scenario of a full-blown financial crisis is off the table) to hope (that the economy is on the mend). As widespread closures of businesses have eased since the spring, data from across the economy have been showing improvements.
A report last week, for example, said 963,000 U.S. workers newly filed for unemployment benefits. It’s a sickeningly high number, but it’s also the first time the tally has dropped below 1 million since March. And on Tuesday the government reported that construction of new U.S. homes surged 22.6% last month, the third straight month of gains. With such budding economic improvements in hand, investors are looking ahead to later this year or 2021 when profits recover further and a vaccine for COVID-19 becomes available.
The five biggest companies in the S&P 500 by market value, meanwhile, have continued to appear recession-proof. These Big Tech companies increasingly drive the S&P 500’s movements almost by themselves, and they’ve benefited from the pandemic because it accelerated working from home and other tech trends. Apple‘s stock price has more than doubled since the market’s recent bottom March 23, while Facebook is up 77% and Amazon is up 74%.
The market’s huge gains have been slowing in recent weeks, and many investors say the easiest gains have been made. But optimism remains strong across much of Wall Street. At Goldman Sachs, strategist David Kostin raised his year-end forecast for the S&P 500 to 3,600 from an earlier outlook for 3,000.
At the same time, many risks still hang over the market.
Investors are still waiting to see if Congress and the White House agree on more aid for the economy. Without the stimulus, analysts say the economy won’t be able to make the recovery that investors have been assuming is on the way. And that assumption is a huge reason the stock market is as high as it is.
Rising tensions between the United States and China, meanwhile, threaten trade between the world’s two largest economies. Tech stocks have had a few stumbles recently amid worries that China could retaliate against U.S. moves by targeting U.S. chip makers and others.
Perhaps the biggest threat of all is if a vaccine for COVID-19 fails become available as quickly as Wall Street expects. That could quickly take a chunk out of the market’s huge rally.
For now, though, the market’s momentum remains on a gentle upward slope. Even Treasury yields have recently been rising, though their ascent slowed Tuesday.
The yield on the 10-year Treasury slipped to 0.67% from 0.69%. In March, the yield touched its record low just beneath 0.34%.
Higher yields can be an indication that investors are upgrading their expectations for inflation and the economy. But they can also pull some buyers away from stocks into bonds, hurting stock prices in the process.
“It’s important to recognize that the bond market doesn’t seem to trust this rally,” said Brian Price, head of investment management for Commonwealth Financial Network.
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