NEW YORK (AP) – A year ago, the terrible free fall in the stock market ended suddenly, starting one of its biggest races.
On March 23, 2020, the S&P 500 fell 2.9%. In all, the index fell by nearly 34% in about a month, eliminating three-year gains for the market.
This turned out to be rock bottom, although the coronavirus pandemic worsened in the following months and the economy sank further into the recession. Large amounts of support for the Federal Reserve and Congress’ economy limited the stock slump. The market recovered all losses in August.
Over time, the rapid development of vaccines against coronavirus has helped inventories to skyrocket further. As well as a growing legion of first-time investors, who suddenly had plenty of time to enter the market using free trading apps on their phones.
All of this led to a) 76.1% increase for the S&P 500 and a shocking return to record highs. This race appears to be one of, if not the, best 365-day runs for the S&P 500 since before World War II. Based on the month-end figures, the last time the S&P 500 soared in 12 months was in 1936, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.
This furious move also raised concerns that stock prices may have gone too far, too fast. Here is a look at five trends that helped shape the market in the past year:
– TWO BULL MARKETS IN ONE
The great Wall Street rally actually took two separate steps. Early on, Big Tech shares and the winners of the economy that suddenly stayed at home pulled the market up. Amazon benefited as people bought more online, Apple increased sales as more people worked from home, and Zoom Video Communications increased as students and adults started meeting online. Technology stocks, as a group, are the largest in the market in value, so their gains helped to compensate for weakness in other sectors as the economy continued to struggle.
Since last fall, however, enthusiasm for an economic takeoff has caused a more widespread recovery. Banks, energy producers and smaller companies, whose profits would be the biggest beneficiaries of a stronger economy, have paved the way as coronavirus vaccines are launched and Washington offers even more financial aid. These gains are also reducing the slack in technology stocks, which have lost momentum with rising interest rates due to concerns about rising inflation.
– FIRST TIME INVESTORS JOIN AND THE GAME DOESN’T STOP
Stuck at home with little to do, people looked for ways to use a few dollars that could have been spent on a movie, restaurant meal or vacation. Many turned to the stock market through their phones, as trading apps made it easier to buy and sell shares with just a few taps, with no commissions.
Customers under the age of 40 accounted for 35% of negotiations last month at Charles Schwab, almost double the rate two years ago. Accounts under one year old are trading more in total at Charles Schwab than accounts over 10 years old.
Many of these traders have used the money they received as a stimulus payment from the United States government. The Robinhood trading app, popular with many novice investors, saw an increase in the percentage of deposits of exactly $ 1,200 or $ 2,400 after the government sent checks for those amounts last spring, shortly after the stock market hit the rock bottom, for example. A new round of government payments – $ 1,400 for individuals – is underway.
Social media has only widened the trend, as traders talk on Reddit, Twitter and elsewhere about which stocks to buy. They have helped to boost the stock market widely, but their influence is more evident in what came to be known as “meme actions”. GameStop rose 1.625% in January, for example, although the video game retailer is struggling financially. The gains from GameStop, AMC Entertainment and other meme actions defied gravity – and, in the opinion of almost all professional investors on Wall Street, common sense.
– A TACULAR SPACE SPEAK RAISES CONCERNS
The whole craze around stocks has raised concerns on Wall Street that prices may have skyrocketed. Many of the criticisms focus on how stock prices have risen much faster than corporate profits.
Another potential sign of much greed and little fear: investors are so hungry for the next big thing that they are pouring billions of dollars into investments before they even know where the money can go. These investments are called special purpose acquisition companies, although they are better known by their acronym, SPACs. Armed with money raised from investors, SPACs look for privately held 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 in the previous year. They have already crossed that level in less than three months this year.
– A GLOBAL RECOVERY
The coronavirus does not really know geographic boundaries. In devastating populations and economies around the world, global financial markets have suffered severe losses.
The recovery was also worldwide. Shares in China, South Korea and other emerging markets as a group have risen almost exactly the same percentage as the S&P 500 since March 23, 2020. Japan’s Nikkei 225 index has also risen by a similar amount.
European markets have lagged behind, although their performance is much better when viewed in dollars instead of euros. Worsening infection rates are raising concerns about a “third wave” on the continent and are forcing governments to bring back some restrictions on daily life. But the hope is that the continued release of vaccines will bring economies and trade back to normal around the world.
– WHO’S STAYING BACK?
Even with so many first-time investors entering the market, not everyone is benefiting from the increase in shares. Only slightly more than half of all American households owned shares in 2019, either by day-trading shares or by maintaining an S&P 500 index fund in a 401 (k) account.
Likewise, not all shares participated in the bull market race in the past year. A handful of shares within the S&P 500 are actually lower, highlighted by Gilead Sciences, which is down 9.8%. The stock skyrocketed at the start of the pandemic, when its remission became a treatment for COVID-19, but fell in part due to concerns about patent expiration.
Other winners of the pandemic stock have also declined since the market took off a year ago, including Clorox, whose disinfectant wipes have become currency, and spam maker Hormel Foods.