Wall Street’s healthy despite Main Street’s slump
The stock market is not the economy. Rarely has that adage been as clear as it is now. An amazing, monthslong rally means the S&P 500 is nearly back to where it was before the coronavirus slammed the U.S., even though millions of workers are still getting unemployment benefits and businesses continue to shutter across the country.
The S&P 500, which is the benchmark index for stock funds at the heart of many 401(k) accounts, ended Thursday at 3,373.43 after briefly during the trading day on both Wednesday and Thursday topping its closing record of 3,386.15 set on Feb. 19. It’s erased nearly all of the 34% plunge from February into March in less time than it takes a baby to learn how to crawl.
The U.S. and global economies have shown some improvements since the spring, when business lockdowns were widespread, but they are nowhere close to fully healed. The number of virus cases continues to rise across much of the United States, and federal and local politicians for the most part lack a strategy to contain it. Many industries, such as airlines, hotels and dining, could take years to recover from the damage.
The Federal Reserve and the U.S. government get a lot of the credit for the rally after pouring trillions of dollars into the economy. Profits also remained incredibly resilient for the stock market’s most influential companies, such as Apple and Amazon. Rising hopes for a potential vaccine to halt the pandemic, meanwhile, have encouraged investors to look past the current dreary statistics.
Here’s a look at how Wall Street has flourished while Main Street struggles:
The market’s big guns
The pandemic has accelerated work-athome and other trends that have boosted Big Tech, including names such as Apple, Microsoft, Amazon, Facebook and Google’s parent company, and their profits are piling up.
Because stocks with the biggest market values carry the most weight in the S&P 500, the movements of Big Tech matter much more than what airlines, cruise-ship operators or other still-struggling companies are doing.
Help from Washington
A famous saying on Wall Street is: Don’t fight the Fed. The central bank is doing everything it can to support the economy, from cutting interest rates to nearly zero to the unprecedented promise to buy even riskier corporate debt. It’s all aimed at ensuring lending markets have enough cash to run smoothly and to prevent prices from going haywire.
The nature of the market
Investors are setting stock prices now based on where they see corporate profits heading in the future. And for many on Wall Street, the future looks brighter than the bleak present, in large part because of hopes that a vaccine for the new coronavirus could help things get back to normal.
“Main Street is the now, Wall Street is the future,” said Sam Stovall, chief investment strategist at CFRA Research.
A return to normal could help the economy get back on track and perhaps boost profits back to record levels. Stock prices tend to track with corporate earnings over the long term.
“Wall Street continues to look six to nine months down the road,” Stovall said.