Here’s why the S&P 500 Defiant rally will continue

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  • The S&P 500 Index has recovered almost all of its pandemic-related crash.
  • A gain of just 5% would see the S&P 500 index return to its all-time high.
  • A steady stream of good news could soon make this a reality.

The S&P 500 Index hit a record high on February 19, reaching 3,393 points. Then the pandemic killed the historic rally, knocking the benchmark down about 35% a month later.

Since hitting its March low, the S&P 500 has rallied significantly. The large-cap index is now around 5% of its February high. There is a good chance that the index will return to all-time highs before the end of the month.

Various factors, such as improving economic fundamentals and the progress of a new vaccine, make this likely. In addition, there is political will to take further measures to stimulate the economy.

Economic recovery is underway

Retail sales are a key piece of economic data signaling a recovery. Retail sales rose 7.5% last month after peaking at 18.2% the month before.

Unemployment is dropping, with a record number of jobs created last month. Non-farm payrolls jumped 4.8 million in June, exceeding the forecast figure of 2.9 million.

If the June employment report continues, unemployment figures will continue to fall. | Source: @ Jobs_AWorld / Twitter

In addition, hope for an economic recovery came from China, which posted 3.2% growth in the second quarter. Chinese imports increased 2.7% in June compared with the same period last year.

A vaccine will inject a dose of optimism into the markets

The measures used so far to contain the pandemic are not sufficient to bring economic activity back to pre-COVID levels. Effective treatments or vaccines are therefore an essential solution.

In the past two weeks, there is growing hope that effective treatments and vaccines will be found.

There are currently more than 155 vaccine candidates under test, of which 23 are currently being tested on humans. Four vaccines are in the final stages of large-scale efficacy testing.

Medical researchers around the world have made significant progress in creating a vaccine just seven months after the start of the pandemic. | Source: @ GiraudSylvain / Twitter

Earlier this month, Moderna’s vaccine candidate (NASDAQ: MRNA) reportedly triggered an immune response in trial participants. More importantly, the trial participants experienced only mild side effects.

As for the treatments, there is no cure yet. There are 19 treatments, according to the New York Times. Two of these vaccines are currently widely used.

With such rapid medical progress, investors are betting that a return to normal is not far off. Investor optimism increases the likelihood that the S&P 500 will return to record highs as soon as possible.

Another stimulus test will lead to another S&P 500 high

Additional unemployment benefits available under the $ 2 trillion CARES Act will end on July 31. With US unemployment in double digits, the additional payments have supported the economy, including improving retail sales.

Stimulus controls and additional unemployment benefits would have boosted consumer spending. | Source: @ jbarro / Twitter

Letting the program expire without a replacement would therefore create serious headwinds for the economy.

Fortunately, Congress is working on four plans to deal with the economic fallout from the pandemic. Among them, sending new stimulus checks to Americans. The backing of President Trump and Treasury Secretary Steven Mnuchin increases the likelihood that further stimulus will be enacted.

With more money in consumers’ pockets, more spending is likely. Investor confidence will improve and the S&P 500 Index will respond in tandem as it heads to new highs.

Disclaimer: This article reflects the opinion of the author and should not be construed as an investment or business advice from CCN.com. The author has no investment position in the aforementioned titles.

Last modified: July 19, 2020 02:29 PM UTC

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