Stock Market Bounces Back After Coronavirus Losses
And Using the S&P 500 to Your Advantage
The S&P 500 has offset its year-to-date losses with optimistic investors who are betting on a swift return to corporate earnings and economic activity. After a mid-February peak, the stock market index measured a 34% drop in performance. While fear of the 2019 coronavirus disease (COVID-19) interrupted the longest-running bull market in American history, the newest peak (on August 18, 2020) set a new record and marked the fastest-ever recovery from a bear market.
The plunge and recovery spanned 126 trading days, and experts argue that the unprecedented government stimulus contributed to the stock market’s quick turnaround.
How the S&P 500 Reacted to COVID-19
The stock market was enjoying record highs in January and February 2020. As fears about coronavirus intensified, the market began to drop – rapidly. By the time stay-at-home orders went into effect in mid-march, the market had entered bearish territory. With unemployment at the highest rates since the great depression and businesses nationwide facing closures and shortages, many investors pulled their investments.
When the Federal Reserve announced its relief programs, however, investors began returning to the market, seeing the nation’s unprecedented response as a “backstop for risk assets.” American investors seemed (and still seem) optimistic about the world’s ability to manage the coronavirus pandemic.
As an economist and multiasset portfolio strategist explains to Markets Insider:
“This is, in part, a reflation story. The market sees conditions as ripe for a strong and sustainable period of economic recovery…It's also become a story of defeating COVID-19.”
Still, the coronavirus pandemic is not over, and the future feels more unpredictable than ever.
Is the Stock Market Okay Now?
On one hand, the stock market is 2.6% lower this year, according to some versions of the S&P 500. On the other, almost all predictions point to “stabilization after months of sharp decline.” Investors are returning to the market and certain industries (i.e. tech and Clorox Co.) are thriving.
Many are betting on next year being better, and when investors are taking optimistic gambles, the stock market is more than okay – it is good.
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