Published: August 23rd, 2020
In the week that the Apple market cap hit $2 trillion, the S&P 500 Index also hit a new record attributed to the rising stock features. And, though it has since retracted, the performance could be an indicator of the trend that American stocks are assuming in the post-pandemic era.
The S&P 500 Index on Tuesday, August 18, managed an intraday record boosted by the unassailable technology stocks. The surge led the broader market to close at 0.2% higher than last day’s trading to ink an impressive 3,389.78 points.
Earlier, the index had recorded an all-time high of 3,395.06. This record comes after weeks of flirting with the record and closing high for more than seven straight days. Market analysts think that the trend also marks the beginning of a fresh bull market.
The rally by tech stocks injected an adequate dose of drama in an otherwise peaceful American equities trading session. Morgan Stanley Investment Management’s managing director, Andrew Slimmon, said the last few days had enough good news to validate its high climb.
The analyst cited the economic data, which he said has been consistently strong in the past few days. Besides, corporate earnings have exceeded analysts’ expectations. However, Andrew cautioned that markets in the U.S. are very vulnerable to any form of bad news. He added that the better performers are, the higher-risk, higher beta plays.
Amazon shares rose by more than 4%while Netflix and Alphabet surged by at least 2%. Overall, the index’s consumer discretionary segment was the best performer, gaining at least 1.5%.
The Nasdaq Composite was just as excited, climbing 0.7% to ink a record 11,210.84 points. However, the Dow Jones Industrial Average was not as fortunate, dropping 0.2% or 66.84 points to stand at 27.778.07 points. The Dow’s drop is attributed to Home Depot and Walmart’s average performances despite posting impressive earnings results.
The S&P 500 Index slipped by more than 30% from the record it set in February as the current health pandemic disrupted profit expectations and shut economic activity. However, the slip was only short-lived. The U.S. stock market’s benchmark index quickly dusted itself from the lowest point this year, recorded on March 23, to skyrocket by more than 54%.
A large portion of the S&P 500 Index’s gains come from big tech shares’ sharp advances. For instance, Alphabet is up 16% year to date, while Facebook has inched up some 27%.
Amazon, the pack’s star performer, has short up more than 79% this year, and Netflix has climbed up by 52%. Other great performers who have impressed over the same period are Microsoft, which is up by 57.4% and Apple, whose stocks have surged by 34.1% in 2020.
Shawn Cruz, a senior manager for trader services at TD Ameritrade, said that the tech markets are technically back to where they were before the stimulus-initiated sell-off. However, he added that the same could not be said about the other sectors. According to him, a big chunk of the economy is still rooted in the doldrums.
He said that traders holding diversified portfolios would most likely have some positions in the red because of this non-uniform recovery.
The equities rip-roaring rally firmly back into the records’ region came majorly because of the elaborate monetary and fiscal stimulus plans. Aside from slashing the overnight rate to zero, the Federal Reserve also launched an open-ended quantitative easing program.
The U.S. lawmakers have pushed through trillions of dollars in direct payments and unemployment assistance for deserving Americans.
The chief investment officer at Boston Private Wealth LLC., Shannon Saccocia, said that the real recipe for the robust, above expectations economic recovery is hard to pinpoint. Considering that the stimulus came at a time when the rationale to diversify risk was all the rage, experts cannot say with certainty if it’s just one or a combination of all the factors that are contributing to the recovery.
The past week saw the markets struggle to pop out of the red, especially after the hopes for a new coronavirus stimulus package faded. And, the lawmakers do not seem keen on getting back to the negotiations table.
With the blame game now boiling in Washington, and the hungover of the Democrats and Republicans national conventions, it may be a while before the two sides bow down to pressure. Treasury Secretary Steven Mnuchin already fired the first salvo accusing the Democrats of failing to agree to a reasonable deal on a new coronavirus stimulus bill.
Moreover, he feels the economic numbers are improving. With his party’s dependence on the recovery path picking up when the economy reopens, it looks like it is up to the Democrats to go the extra mile and re-establish negotiations.
Despite the S&P 500 Index’s great run, not every company enjoyed the ripple effect. The shares of the retailers Walmart and Home Depot experienced a sell-off that eventually restricted the index’s gains. Unusually, the retailers’ stocks performed dismally, especially because both posted quarterly results that surpassed the forecast.
Home Depot reported a 23% surge in Q2 sales, attributed to the increased DIY projects by customers locked down in their homes. Walmart’s revenue and earnings also surpassed their expectations. The Bentonville headquartered retail chain reported a 9.3% increase in same-store sales. Moreover, its e-Commerce sales almost doubled.
The S&P 500 Index etched a new intraday record on the day that Apple made a record by becoming the first company to attain a $2 trillion market cap. However, the recovery is limited to the technology sector, where most companies have managed double-digit growth since the year began. The improvement is attributed to the extensive fiscal and monetary stimulus packages that Congress has approved. It is hard telling if the said recovery will be sabotaged by the failure of Democrats and Republicans to agree on a new stimulus deal.