NEW YORK (AP) – A year ago, the frightening free fall of the stock exchanges ended abruptly, inaugurating one of its biggest races.
On March 23, 2020, the S&P 500 fell 2.9%. In total, the index fell by almost 34% in about a month, eliminating three-year market gains.
This proved to be the bottom line, even as the coronavirus pandemic worsened in the following months and the economy sank deeper into the recession. Massive amounts of economic support from the Federal Reserve and Congress have limited how much stocks would fall. The market recovered all its losses by August.
Over time, the rapid development of coronavirus vaccines has helped stocks grow even more. So did growing legions of first-time investors, who suddenly had enough time to enter the market using free trading apps on their phones.
All this led to a 76.1% increase for the S&P 500 and a shocking return to record highs. This run seems to be one of, if not the best, 365-day stretches for the S&P 500 before World War II. Based on end-of-month figures, the last time the S&P 500 rose so much in a 12-month period was in 1936, according to Howard Silverblatt, a senior index analyst at the S&P Dow Jones Indices.
The whole furious move also raised concerns that stock prices could have gone too far, too fast. Here’s a look at five trends that have helped shape the market over the past year:
– TWO BULL MARKETS IN ONE
The big Wall Street rally actually had two distinct stages. Earlier this year, Big Tech shares and the winners of the economy suddenly stay at home raised the market above. Amazon benefited from the fact that people bought more online, Apple increased sales as more people worked from home, and Zoom Video Communications grew as students and adults began meeting online. Technology stocks as a group are the largest in the market in value, so their gains have contributed to the weakness in other sectors as the economy has continued to struggle.
However, since last autumn, enthusiasm for economic take-off has led to more growth. Banks, energy producers and smaller companies whose profits would be the biggest beneficiaries of a stronger economy have led the way as coronavirus vaccines are launched and Washington is offering even more financial help. These gains also raise the weakness for technology stocks, which have lost momentum as interest rates rise due to concerns about higher inflation.
– PRIMARY INVESTORS SOMETIMES JOIN AND THE GAME DOESN’T STOP
Stuck at home with little to do, people were looking for ways to use some dollars that might otherwise have been spent on a movie, a meal at a restaurant, or a vacation. Many have turned to the stock market through their phones because trading applications have made it easier to buy and sell stocks with a few taps, with no commission.
Customers under the age of 40 accounted for 35% of Charles Schwab’s trades last month, almost double the rate two years earlier. Accounts with less than one year make more transactions in total at Charles Schwab than accounts that have been for more than 10 years.
Many of these merchants used the money obtained as incentive payments from the US government. The popular Robinhood trading app for many novice investors saw an increase in the deposit rate of exactly $ 1,200 or $ 2,400 after the government sent checks for these amounts last spring, even after the stock market hit the threshold for example. A new round of government payments – $ 1,400 to individuals – is underway.
Social media has only amplified the trend, as traders talk on Reddit, Twitter and elsewhere about buying shares. They have helped to grow the stock market on a large scale, but their influence is most evident in what has become known as “meme stocks”. GameStop rose 1.625% in January, for example, even though the video game retailer struggled financially. Earnings for GameStop, AMC Entertainment and other meme stocks defied gravity – and, in the opinion of almost every professional Wall Street investor, common sense.
– A SPACE-TACULAR BOOM IS TESTED
All the rage around the stock has raised concerns across Wall Street that prices may have been too high. Much of the criticism is focused on how much stock prices have risen rather than corporate profits.
Another potential signal of too much greed and insufficient fear: investors are so hungry for the next big thing that they are trying to invest billions of dollars in investments before they even know what the money might be for. These investments are called special purpose procurement companies, although they are better known by their acronym, SPAC. Armed with tight cash 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, SPACs raised $ 83.4 billion, more than six times the previous year. They have already exceeded this level in less than three months this year.
– A GLOBAL RECOVERY
Coronavirus has no real geographical boundaries. As it has devastated populations and economies around the world, global financial markets have suffered heavy losses.
The recovery has also been worldwide. Shares in China, South Korea and other emerging markets as a group increase by almost the same percentage as the S&P 500 as of March 23, 2020. The Japanese Nikkei 225 index is also similar.
European markets are lagging behind, although their performance is much better when seen in dollars instead of euros. The worsening infection rates are worrying a “third wave” on the continent and are forcing governments to put back some restrictions on daily life. But the hope is that the continued launch of vaccines will bring savings and trade back to normal around the world.
“WHO’s left behind?”
Even with so many first-time investors entering the market, not everyone benefits from rising stocks. Just over half of all U.S. households held shares in 2019, regardless of whether they traded daily shares or held an S&P 500 index fund in a 401 (k) account.
Likewise, not all shares have participated in the evolution of the larger market in the last year. A handful of shares in the S&P 500 are actually smaller, titled by Gilead Sciences, which fell 9.8%. The stock rose at the beginning of the pandemic, as its drug remdesivir became a treatment for COVID-19, but partially gave up concerns about the expiration of future patents.
Other early winners of the pandemic have also disappeared since the market was launched a year ago, including Clorox, whose coin-operated disinfectant wipes and spam maker Hormel Foods have become similar.