The S&P 500 index was on the verge of Tuesday recording its best twelve-month performance in the index’s publishing history, following its dramatic drop in the bear market a year ago.
If the S&P 500 SPX,
avoids a 2.9% drop on Tuesday, which seemed likely to mark its biggest 12-month rise for the index since it was released in 1957, according to Tim Edwards, managing director of investment strategy at S&P Global, which owns Dow Jones Indices.
But beyond the first anniversary of the U.S. stock market that hit lows last year after the outbreak of the coronavirus pandemic, the S&P 500 could also be ready for the second year of gains.
“After falling nearly 34%, the S&P 500 took just five months to recoup its losses,” Ryan Detrick, chief market strategist at LPL Financial, wrote in a note Monday, referring to the fall of the S&P 500. to a minimum of March 23, 2020 from its maximum prior to February 19, 2020.
Its full recovery was marked last August, with the fastest rebound of the S&P 500 due to a loss of more than 30%, while its gains for the year exceeded previous episodes of convulsions in the financial markets.
“Things have closed completely, as stocks have starred in a furious rally, with new highs around the world as the economy recovers at a record pace,” Detrick said. “To put things in perspective, the S&P 500 also lost 34% in 1987, but that recovery took 20 months to reach new highs again.”
Last year’s stock market crash began in the United States in February with the confluence of growing coronavirus infections and new restrictions on travel and business activities, which led to the S&P 500 SPX for the first time.
Dow Jones Industrial Average DJIA,
the Nasdaq Composite Index COMP,
down 10% in correction mode, and then quickly 20% lower in bear market territory.
To help avert a financial crisis, the Federal Reserve reduced its benchmark interest rate to 0.25%, a level it hopes to maintain until 2023 and restarted central bank bond purchases by a value of $ 120 billion monthly. It also triggered an unprecedented list of pandemic credit facilities, including the first-time corporate debt purchase.
After that, the U.S. stock market soon found its footing, as the S&P 500 entered its current stock market career on April 8, 2020, according to Dow Jones Market Data. The recovery of the Dow began earlier on March 26, while the Nasdaq Composite followed it on April 14.
For Dow Jones, a bullish market begins when stocks rise 20%, while a 20% drop marks the start of a bearish market. According to its methodology, the shares are always in the bullish territory or the bullish market up to an investment of 20%.
Bear to Bull
Last summer, more bullish views on the U.S. economic recovery also began to consolidate as advances in COVID-19 vaccine development began to emerge.
In July, Moderna Inc. MRNA,
offered updates on the vaccine candidate and a month later, the three major stock market indices were reaching all-time highs.
So what? The US vaccination effort has surpassed Europe, where German Chancellor Angela Merkel on Tuesday described the UK’s dominant variant of the virus as a “new pandemic”, while exposing stricter blocking measures over the next period. Easter holidays.
But if history can be a guide for today’s market, the S&P 500 could still be ready for a second year of flagship gains.
This chart shows first-year bullish market gains averaging 41% for the S&P 500, after six bearish market investments of more than 30% since World War II.
Stock markets, after falling more than 30%
LPL Research, FactSet
But the chart also shows second-year earnings averaging nearly 17%, while declines of 10.2%.
Reflection phase
Mark Haefele, investment director at UBS Global Wealth Management, said he expects risky assets to look up as the market enters a “reflation” phase of the recovery, in a note Tuesday .
The IOC also said investors should “look for returns,” while preparing for high growth, rising inflation and low policy interest rates.
According to the ICE BofA Corporate Index, US corporate bond segment yields of approximately US $ 10.5 trillion were close to 2.27% behind the low pandemic of 1, 79% in January.
Investors have worried about the potential for rising government bond yields to undermine some of the high pandemic gains seen in the technology and high-growth stock market sectors, although banks and financial firms could benefit -is the ability to charge more interest to borrowers.
Matthew Bartolini, head of research at SPDR Americas, head of Global Street Advisors, noted Tuesday that interest in cyclical, value-oriented areas caused $ 8 billion in new assets to flow into the market. SPDR Sector Select Financial Fund
XLF,
so far, in 2021. The fund increased by 13.3% year-on-year until this Tuesday, surpassing the S&P 500 by approximately 9%.
10-year Treasury yield TMUBMUSD10Y,
it was close to 1.65% on Tuesday, after rising seven weeks in a row to 1.729% on Friday, near a one-year high.
“While a recovery in volatility would be normal at this stage of a strong bullish market, we believe the right investors can consider buying the dip,” Detrick said. “Vaccine distribution, fiscal and monetary stimulus and a solid economic recovery have high confidence.”