The S&P 500 index remained on Tuesday at the beginning of the best 12-month performance in the history of the index’s publication, after its spectacular decline in the bear market a year ago.
If the S&P 500 SPX,
avoids a 2.9% decline on Tuesday, which is likely to mark the 12-month biggest gain for the index since it began publishing in 1957, according to Tim Edwards, general manager of the index’s investment strategy at S&P Global, which holds the Dow Jones Indices.
But beyond the first anniversary of the US stock market, which hit lows observed last year after the coronavirus pandemic, the S&P 500 could also be gearing up for its second year of gains.
“After falling nearly 34 percent, the S&P 500 took just five months to recover its losses,” Ryan Detrick, chief market strategist at LPL Financial, wrote in a note Monday, referring to the sinking of the S&P. 500 to a low on March 23, 2020 from its previous peak on February 19, 2020.
Its full recovery was marked in August last year, with the fastest rebound in history for the S&P 500, due to a loss of over 30%, while its earnings for the year exceeded previous periods of revolt for financial markets.
“Things have been fully investigated now, as the actions have staged a furious rally, with new highs taking place 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 return to new highs.”
The transition to the stock market last year began in the US in February, with the confluence of growing coronavirus infections and new restrictions on travel and business activities, which first attracted the S&P 500 SPX,
Dow Jones Industrial Average DJIA,
and Nasdaq Composite Index COMP,
decreases by 10% in the correction mode, then quickly by 20% lower on the territory of the bear market.
To help avert a financial crisis, the Federal Reserve reduced its benchmark interest rate to between zero and 0.25%, a level it expects to maintain until 2023, and resumed bank bond purchases. central worth $ 120 billion a month. It also triggered an unprecedented list of pandemic lending facilities, including buying corporate debt for the first time.
After that, the US stock market took a while to find its position, with the S&P 500 entering the current market on April 8, 2020, according to Dow Jones Market data. The Dow recovery began earlier on March 26, while the Nasdaq Composite followed on April 14.
For the Dow Jones, a bull market starts when stocks rise by 20%, while a 20% drop marks the beginning of a bear market. According to its methodology, the shares are always on bear territory or on the bull market up to a reversal of 20%.
Get Bull on
More optimistic views on the US economic recovery also began to solidify last summer as progress in the development of COVID-19 vaccines began.
Until July, Moderna Inc. MRNA,
offered updates on its vaccine candidate and a month later, all three major stock indices reached all-time highs.
And now what? The US vaccination effort has surpassed Europe, where German Chancellor Angela Merkel on Tuesday called Britain’s dominant version of the virus a “new pandemic”, while stressing stricter measures in the run-up to the Easter break.
But if history can be a guide for today’s market, the S&P 500 could be ready for a second year of banner earnings.
This chart shows first-year bull market gains averaging 41% for the S&P 500, following six market reversals by more than 30% since World War II.
Bull markets, after a decrease of over 30%
LPL research, FactSet
But the graph also shows second-year earnings averaging almost 17%, while average withdrawals were 10.2%.
Reflation phase
Mark Haefele, chief investment officer at UBS Global Wealth Management, said he expects risky assets to be higher as the market enters a phase of “rebating” the recovery, in a note on Tuesday.
The CIO also said investors should “hunt the yield” as they prepare for high growth, rising inflation and low political interest rates.
Yields on the U.S. corporate bond market investment segment of about $ 10.5 trillion were last seen nearly 2.27%, according to the ICE BofA Corporate Index, rising from a pandemic low of about 1 , 79% in January.
Investors have become concerned about the potential for rising government bond yields to lose some of the large pandemic gains seen in the high-tech, high-tech sectors, even though banks and financial companies could benefit from the ability to charge more interest. for borrowers.
Matthew Bartolini, head of SPDR Americas at State Street Global Advisors, said Tuesday that interest in value-driven and cyclical market areas has led to $ 8 billion in new assets to flow into Financial fund selected SPDR sector
XLF,
so far in 2021. The fund rose 13.3% on Tuesday from last year, surpassing the S&P 500 by about 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, close to its one-year high.
“While an increase in volatility would be normal at this stage of a strong bull market, we believe the right investors might want to consider buying the dive,” Detrick said. “The distribution of vaccines, fiscal and monetary incentives and a robust economic recovery all have our high confidence.”