A key US stock index has hit a new high despite lingering concerns over the brutal economic impact of the pandemic.
The S&P 500, one of the largest and most important measures in the US market, edged up Tuesday to close at 3,389.78 – about three points above its February 19 high.
Other US indices also rebounded.
The Nasdaq hit another record after breaking its previous record in June, while the Dow Jones Industrial Average sits around 5% off its February record.
US stocks have been on an upward trajectory since March 23, when the US central bank announced an unprecedented series of economic support measures.
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But when the pandemic took hold 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 particularly surprising, given America’s continued struggle to contain the coronavirus and lingering concerns about the economy. The United States experienced its largest quarterly contraction on record in the three months ending July, amid widespread lockdowns.
“It’s no surprise that we’ve had a significant recovery, but over the past two months we’ve continued to come together… I’m shocked we’re having this conversation,” Mr. Delwiche said.
Analysts believe the recovery is in part due to moves by the Federal Reserve and other stimulus measures, as well as demand from investors who believe the economy will heal and see few better opportunities to earn. money than in the stock markets.
While surprising, such a rapid market rebound is not without precedent, said Sam Stovall, chief investment strategist at CFRA Research. By his calculations, this is actually the third fastest climb to a new high for the S&P after such a deep drop since 1929.
But the gains in the United States overtook many other markets. London’s FTSE 100 remains around 20% below its January high, while France’s CAC 40 is around 19%.
Japan, which saw its Nikkei 225 index rise to around 4% of its pre-crisis peak, has benefited from both an aggressive government stimulus and relative success in controlling the virus without mass lockdown .
Tech stocks fuel the rally
The unusual strength of the US rebound comes from its tech companies, such as Apple, Microsoft and Amazon, which were seen as winners despite the lockdowns, as well as companies in areas like cloud computing and machine learning.
“We wouldn’t be flirting with all-time highs without technology,” said Terry Sandven, chief equity strategist at US Bank Wealth Management.
Shares of the S&P 500 tech sector have climbed around 25% so far this year, although other areas remain flat or negative. The energy sector, for example, is down about 37% since the start of January, while financials is down about 20%.
Disconnection from the market
Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, said it was a warning sign for those who might wish to see the new S&P 500 high as a signal to the economy as a whole.
“There is a wide dispersion between those who have done well and those who have done badly,” he said.
Overall, the S&P 500 is up around 5% year-to-date.
But of the 500 companies in the index, more than half have stocks at a lower level than at the start of the year, he said. And this is even if the large companies in the S&P 500 are better equipped to withstand a downturn than many small companies.
“We’ve come a long way and there’s a lot of optimism in there and it’s worrying,” said Mr. Silverblatt. “If we don’t get what we expect – disappointment is not a good thing in the market. ”
Mr Sandven said if the outlook for the economy as a whole does not improve, further gains will be limited.
Political questions – such as whether Washington will approve further economic stimulus and how the US presidential election unfolds – could also mean a bumpy race for investors, he added.
“Obviously, there is a lot of optimism that hinges on a return to growth in 2021,” Sandven said. “But we have to be careful. “