Provided by Robert Warther, Warther Private Wealth
In the year following the Covid pandemic, the stock market has rebounded in a way that no one imagined. In March of 2020, the stock market plunged as investors became weary of Covid’s global spread. On March 11th and 12th, the S&P 500 lost 15%, plummeting more then 30% by March 23. Just as surprising as the fall was the rebound that followed the next year, which was powered in part by new fiscal and monetary policies.
As of the 16th of August 2021, the S&P 500 had doubled from its Covid era low of 2,237.40 points to 4,479.71 points on August 16th. This is an incredibly short time for the market to turnaround, taking less then a year to double from its low. The last time that the market doubled this fast was World War 2. During the financial crisis of 2008, the S&P 500 hit its low of 676.53 points in March of 2009. The index did not double again until April 2011, which is close to 3 years later. Typically bull markets take about 1,000 trading days to double an index. The market really did recover quickly following Covid!
Many people credit the recovery to new policy and fiscal stimulus. At the height of Covid, the Federal Reserve moved interest rates to near zero while also introducing a bond buyback program that helped introduce billions back into financial markets. At the same time, the SECURE act provided millions of dollars to struggling Americans, with stimulus checks and unemployment insurance.
Even if the numbers seem too good to be true, the fundamentals behind the rebound support it. Corporate profits have moved up and off the pandemic low, with some S&P 500 companies reporting a 53% year over year earnings growth in the first quarter, with second quarter earnings expected to be strong as well. The rebound for the market was initially led by the technology sector, which performed well with the stay-at-home trends of 2020. In 2021, the technology boom slowed, and value stocks took over, with the materials, energy, financials, and industrial sectors doubling from their Covid lows.
The S&P 500’s milestone is definitely notable, but some expect returns to get bumpier down the road. This worry is caused by the new Delta variant of Covid, which is said to be twice as contagious as previous strains. The current 7-day average for new cases is 114,190 thousand, which is up 18% from the previous week according to the CDC. Some also worry that the FED may dial back on their easy money policies. This might mean a reduction in the current bond buyback program or a change to interest rates. The market has also not had even a 5% pullback in about 10 months, leading many to believe that we are nearing a market correction. It will be important to keep an eye on developments with Covid as well as changes to federal policy.
Robert Warther may be reached (239) 276-7939, or bob@wartherprivatewealth.com.
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