NEW YORK (AP) – A year ago, the terrifying free fall of the stock market, which kicked off one of its great races, ended abruptly.
On March 23, 2020, the S&P 500 fell 2.9%. In total, the index fell about 34% in about a month and ended market gains for three years.
This turned out to be the bottom line, although the coronavirus pandemic worsened in the following months and the economy sank further into recession. The amount of massive support for the Federal Reserve economy and Congress limited the extent to which stocks would fall. The market recovered all its losses in August.
Over time, the rapid development of coronavirus vaccines helped populations become even more extinct. So did the growing legions of first-time investors, who suddenly had plenty of time to enter the market using free trading apps on their phones.
All this led to a 76.1% increase in the S&P 500 and a shocking return to record highs. This test seems to be one of the best 365-day stretches for the S&P 500 since before World War II, if not the best. Based on end-of-month figures, the last time the S&P 500 rose so much in a 12-month stretch was in 1936, according to Howard Silverblatt, a senior index analyst at S&P Dow Jones Indices.
The whole furious move has also raised concerns that stock prices have gone too far, too fast. Here are five trends that helped shape the market over the past year:
– TWO BULL MARKETS IN ONE
The great Wall Street rally actually had two distinct stages. At first, the shares of Big Tech and the winners of the economy that suddenly stayed at home boosted the market. Amazon benefited as more people bought online, Apple increased sales as more people worked from home, and Zoom Video Communications increased as students and adults began meeting online. Technology stocks as a group are the most important in the stock market in value, so their gains helped fill the weakness in other sectors as the economy continued to struggle.
However, since last autumn, the enthusiasm for the economic take-off has led to a more widespread rise. Banks, energy producers, and smaller businesses, whose profits would be the biggest beneficiaries of a stronger economy, have led the way as coronavirus vaccines are established and Washington is offering even more help. financial. These gains also regain the frequency of technology stocks, which have lost momentum as interest rates rise due to concerns about higher inflation.
– INVESTORS COME FOR THE FIRST TIME TO JOIN AND THE GAME DOES NOT STOP
Trapped at home with little to do, people were looking for ways to use a few bucks that would otherwise have been spent on a movie, a meal at a restaurant, or a vacation. Many addressed the stock market through their phones, as commercial apps made it easy to buy and sell stocks with a few taps, with no commissions.
Customers under the age of 40 accounted for 35% of the deal last month at Charles Schwab, nearly double the rate two years earlier. Accounts under one year old are trading more at Charles Schwab than accounts over ten years old.
Many of these merchants have used the money they earned as stimulus payments from the U.S. government. The Robinhood trading app, popular with many novice investors, raised the deposit rate by $ 1,200 or $ 2,400 after the government sent checks of those amounts last spring, just after the stock market hit rock bottom. for example. A new round of government payments ($ 1,400 to individuals) is underway.
Social media has only widened the trend as traders talk on Reddit, Twitter and other sites about which stocks to buy. They have helped boost the stock market in general, but their influence is most evident in what has come to be known as “meme stocks”. GameStop rose 1.625% in January, for example, although the video game retailer has struggled financially. The gains from GameStop, AMC Entertainment and other meme stocks defied gravity and, in the opinion of almost every professional Wall Street investor, common sense.
– A SPAC-TACULAR BOOM ON CONCERNS
All the mania around stocks has caused concern on Wall Street that prices may have risen too much. Much of the criticism is focused on the speed of rise in stock prices that profits companies.
Another potential sign of too much greed and insufficient fear: investors are so hungry for the next big thing that they invest billions of dollars in investments, even before they know where the money could go. These investments are called special purpose acquisition companies, although they are better known by their acronym, SPAC. Armed with cash raised from investors, SPACs are looking for private companies to buy so that the company can easily list its shares on a stock exchange.
Last year, the SPACs raised $ 83.4 billion, more than six times the previous year. This year they have already surpassed this level in less than three months.
– A GLOBAL RECOVERY
The coronavirus knows no geographical boundaries. As it devastated populations and economies around the world, global financial markets suffered heavy losses.
The recovery has also been global. Shares in China, South Korea and other emerging markets as a group are up nearly the same percentage as the S&P 500 since March 23, 2020. The Japanese Nikkei 225 index is also up a similar amount.
European markets have lagged behind, although their performance is much better if seen in dollars instead of euros. The worsening infection rates are raising concerns about a “third wave” on the continent and forcing governments to regain some restrictions on daily life. But the hope is that the continued deployment of vaccines will restore normalcy to economies and trade around the world.
– WHO IS LEFT BEHIND?
Even with so many first-time investors entering the market, not everyone benefits from the increase in shares. Just over half of all U.S. households owned shares in 2019, either by trading daily stocks or having an S&P 500 index fund in a 401 (k) account.
Similarly, not all stocks have participated in a higher market evolution over the last year. A handful of stocks within the S&P 500 are actually lower, according to Gilead Sciences, which is down 9.8%. Stocks skyrocketed in the early days of the pandemic as its drug remdesivir became a treatment for COVID-19, but fell in part on concerns about the upcoming patents.
Other first pandemic stock winners have also withdrawn since it hit the market a year ago, including Clorox, disinfectant wipes turned into currency, and Hormel Foods, a spam maker.