S&P 500 Reaches New High in One of Fastest Recoveries

What You Should Take Away From This Wild Ride

Stock analyst eyeing chart

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If one of the most popular benchmarks for U.S. stocks is any indication, investors who rode out the market’s ups and downs this year have been rewarded for their patience. 

The S&P 500 not only notched a new all-time high of 3,389.78 today, but it’s now officially fully recovered from the tumble it took at the onset of the coronavirus outbreak, having surpassed its pre-pandemic high from February.

Key Takeaways

  • The S&P 500 reached an all-time high today of 3389.78
  • The new high also marks a complete recovery from the COVID-19 market crash
  • It’s the third-fastest recovery from a bear market since at least 1929
  • Investors who rode it out were rewarded for their patience
  • Positive sentiment about technology stocks and government intervention fueled the comeback

This exceptionally quick U-turn in stock prices, despite the persistent health crisis and economic recession, underscores the value of a level-headed, longer-term strategy, said Sam Stovall, chief investment strategist of U.S. equity strategy at CFRA Research, which has more than 2,000 clients globally.  

“There’s an awful lot of fundamental optimism behind that swift recovery in the market,” Stovall said in an interview with The Balance. The people who lost money were those who sold their stocks in a panic, he said.

The S&P 500 experienced its fastest bear market (a decline of 20% or more from a recent high) since at least 1929, bottoming out in just 33 days over February and March before changing course, according to data compiled by Stovall. What’s more, the subsequent recovery, which took less than five months, is the third-fastest among the 17 bear markets since 1929. The benchmark has surged 51.5% since the bear market trough on March 23, replacing all the value lost in the pandemic-triggered crash. 

Here are some insights on this year’s wild ride.

In Some Ways, This Was a ‘Garden Variety’ Bear Market

While this particular market decline was remarkable for its speed, turns out it was typical in other ways. At its worst, the S&P 500 lost 34% of its value, putting the decline squarely in the range of what Stovall refers to as a “garden variety” bear market in which the market drops in the range of 20% to 40% from peak to trough. (In fact, Stovall’s data shows that while the average bear market recovery period since 1929 is 44 months, the average decline is 38%.) 

What's more, it's not unusual for the stock market to begin rebounding before the economy. This happened in 2009: The S&P 500 began rising in March, while the Great Recession ended that June.

By April, the S&P 500 had risen more than 20% from its March trough—the amount sufficient to be considered a new bull market—though some people on Wall Street had avoided labeling it as such, given the unprecedented nature of the pandemic.

Investors Viewed the Pandemic More Like a Natural Disaster 

The cause of this year’s market downturn is much different than past bear markets, which helps to explain why stock prices have rebounded so quickly, according to Jamie Cox, managing partner at the investment management firm Harris Financial Group. 

“Market participants have, from the beginning, treated this more like a natural disaster than a financial crisis,” Cox said in an interview. “The prevailing view is that this pandemic has a finite duration” because there will be a cure at some point for the COVID-19 disease, he said.

Once investors were confident that the pandemic wouldn’t result in a major upheaval to the entire financial system, they could instead focus on how quickly the U.S. would return to economic growth after gross domestic product contracted in the first and second quarters, Stovall said. 

“There are expectations of a V-shaped recovery in the second half of the year,” he said of the economy. “All we need to figure out is if it’s a lowercase v or an uppercase V.” 

The Fed and Congress Were Instrumental 

One reason investors quickly became so optimistic about the economy is because both the Federal Reserve and Congress provided “incredibly generous” monetary assistance to American workers and business owners, according to Cox. 

"The speed of the recovery is due to the speed at which the government came in and helped stabilize markets," Cox said. “This particular situation was so unique and special and unusual that it made sense for the government to step in like it did.”

Central bankers slashed the target for the fed funds rate—one of the most important benchmark interest rates—to virtually zero in March, and then took a series of other emergency steps to prop up the economy. 

Plus, Congress passed the $2 trillion CARES Act in March, leading to a variety of relief measures, including a one-time $1,200 stimulus check for most Americans, an extra $600 a week for those receiving unemployment benefits, and a forgivable loan program for small businesses.

Technology Stocks Led the Charge

Shares of the so-called “FAAMG” group of Facebook, Amazon, Apple, Microsoft, and Google’s parent company Alphabet, have risen by 72%, on average, since the March low, outpacing the broader market’s rally in most cases. These are the five largest members of the S&P 500, accounting for more than 20% of the index’s total market capitalization.

Why have tech stocks done so well? These companies’ goods and services have been “the grease that’s kept the engine going” because they’ve enabled people to work from home and communicate, Cox said. 

The Nasdaq Composite Index, which is used as a proxy for the tech sector, surpassed its February high by June and has gone on to set new records. As stocks in other sectors join the rally, investors should be encouraged that “this is no longer a tech-based story, and the recovery is really, really getting some legs under it,” Cox said.

A New High Doesn’t Dictate Where the Market Goes From Here

Yes, the stock market has fully rebounded, but the country still faces a pandemic and economic recession, and a lot will ride on whether a vaccine for COVID-19 proves successful, CFRA’s Stovall said.

Plus, the presidential election in November is an unknown that could affect market sentiment about government spending, trade negotiations, and other issues. “The fact that it’s an election year is important because it throws a monkey wrench into a lot of things,” Stovall said.

All the more reason investors who exercised patience in riding out the market’s ups and downs this year shouldn’t make big changes to their investment strategy just because the market has recovered, Harris Financial's Cox advised. 

Now might be a time to consider buying shares of companies that were beaten down the most in the past six months or reallocate some money from bond investments back into stocks, he said.

Still, Stovall said he’s optimistic about 2020 overall. “I think people could be surprised how strong the market is at the end of the year,” he said.