Looking at the contraction in the economy, it would be
fair to assume that the stock market would reflect the
many indicators that signify a downturn.
As recently as February, 2020, the economy was going
strong and looked like nothing could take the wind out of its sails. The impact of the pandemic was unrelenting
and hurt many segments of the market to a degree that
some won’t recover from.
The S & P 500 Index is a closely-watched barometer
for the market. The Standard & Poor’s 500 Index is a market-capitalization-weighted index of the 500 largest U.S. publicly traded companies. The Index provides a good guide for the performance of U.S. large-cap equities.
Despite the recent doom and gloom, the S & P 500 has
continued to reach new highs and the Nasdaq has done
the same. As of August 24, 2020, the S & P 500 Index
is up over 56 percent off of its 52-week low in March.
Is it really as great as it sounds? The news of new highs
may be a mixed bag. A study by CNBC found that 38
percent of the stocks in the index had gains, while the
remaining 62 percent had losses. CNBC says that “43
stocks in total saw gains of 25 percent or more.”
Yet, by August 24, 2020, the Index had risen 34.12
points to 3431.28, which was its third closing record
in a week.
Some market segments, that have benefitted include
technology and health care. Companies like Apple,
Facebook and Amazon, and even some airline and
cruise operators, have seen gains. Drilling down in
these segments, some stocks have seen tremendous
performance and some have lagged.
Investors Searching for Optimism
One recent stimulus for the S & P has been the potential
efficacy for a therapeutic to combat COVID-19. With a
vaccine still a long way off, the only other optimism lies
in effective treatments. Also, the interest in Apple stock
has helped the S & P see record gains. Apple is not only
a component of the S & P 500 Index, but also the S & P
100 Index, the Dow and Dow Composite Indexes and the
Nasdaq 100 Index.
Therapeutics like convalescent plasma therapy are
looking promising and the FDA has allowed some doctors
to use the treatment with patients who are more seriously
ill with COVID. Any reason for optimism has helped spur
the market upward.
Although only segments within the Index have performed
well, futures have risen after the Index surpassed 3,400.
To add some additional perspective to the success of
the S & P, it is instructive to also consider that ten-year
treasury notes offer only about 60 basis points,
so equities are still very attractive.
While the economy remains in a pandemic-fueled slowdown, segments within the S&P Index ignore the larger
economic woes and steam ahead. Can it continue? With
an election approaching; it depends on the outcome and
the success in finding a safe vaccine.