The S&P 500 Index peaked at its all-time high as it leaped above its highest-ever closing on Tuesday (8/18). The benchmark index climbed 0.2% to a staggering level of 3,389.78, briefly surpassing its mid-February closing record of 3,386.15. The noteworthy feat was achieved through sharp advances in Big Tech shares which pioneered those gains. In comparison to the previous year, the stocks of numerous titan tech firms skyrocketed. Stocks of Facebook went up 27% more year to date, Amazon rose 79% more this year, while Netflix grew 52% more due to surge in demand for technologies amid the ongoing policies. As influential as momentum seem to be, only about a third of the S&P 500 companies are in the green zone since mid-February. The average stock within the index is still declining by 6%, notably energy companies doing worse than others. Additionally, according to Bloomberg Intelligence, second-quarter U.S. profits have been underwhelming, where their performance significantly fell by 33%. Consequently, the condition of stocks amidst the pandemic has showcased unfair aftereffects distributed among them, causing the "Symbol of Inequality" to come to light once again. While the pandemic’s winners list is brimming with tech-companies and transportation, retailing and energy companies have subsequently suffered tremendously.
The history of a bear market suggests that rallies will often time pick up speed and has the potential to get even stronger, in exception to the cases of in 1957 and 2000. Typically, elevated valuations are catalysts for this kind of comeback and the current circumstances have shown the S&P 500 trading north of 26 times annual earnings. The price to earnings ratio is so high at this stage of bear market recovery, causing some strategists to pause, in response to a potential historic ‘trap’. In 1956-1957, the S&P 500 only bounced back by 1% preparatory to the peak before its freefall by 20% to its lowest level and continued to settle there for three months. In other cases, specifically in 2000, the market experienced full recovery by early September only to fall again, wiping out half of its total worth. For now, we have seen that the trend is up for the last five months, but this week’s price action indicated that market gains would get harder from this point, as they did in 1957 and 2000. Doug Ramsey, Leuthold Group’s chief investment officer, said, “The fact that S&P 500 valuations are currently so much higher than at any comparable breakout convinced us that this is a higher-risk one ‘chase’ than any past instance”.
The event of the S&P 500 Index peaking this year's highest level indicates Wall Street's shortest bull market in history. The ensuing comeback rally signifies the start of a new bull market. It can be seen from the last record on Feb 19, the index closed at 3,386.15, whereas recently, it closed at 3,389.78 on Aug 18, even though it dropped by 33.9 percent on March 23. It has never dropped further since March which signals the bull market being 5 months old with a 51.5 percent gain. This comeback provides an incentive for investors who see the current situation from a new angle, as they would not have previously believed that the index could actually increase due to this year's unprecedented COVID-19 spread. Although, some investors worry about the urge from global policymakers to fight the pandemic, which could ultimately fuel equity bubbles. Despite all that, the numerous imperfections of our reality reinforces the idea that market conditions of current times are jarringly disconnected with the actual economy.
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