Overstimulated? Stocks soar 75% in historic 12-month run
NOW YORK >> It was one year ago that the terrifying free fall for the stock market suddenly ended, ushering in one of its greatest runs.
On March 23, 2020, the S&P 500 fell 2.9%. In all, the index dropped nearly 34% in about a month, wiping out three years’ worth of gains for the market.
That turned out to be the bottom, even though the coronavirus pandemic worsened in the ensuing months and the economy sank deeper into recession. Massive amounts of support for the economy from the Federal Reserve and Congress limited how far stocks would fall. The market recovered all its losses by August.
As time passed, the quick development of coronavirus vaccines helped stocks shoot even higher. So did growing legions of firsttime investors, who suddenly had plenty of time to get into the market using free trading apps on their phones.
It all led to a 76.1% surge for the S&P 500 and a shocking return to record heights. This run looks to be one of the, if not the, best 365-day stretches for the S&P 500 since before World War II. Based on month-end figures, the last time the S&P 500 rose this much in a 12-month stretch was in 1936, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.
All the furious movement has also raised worries that stock prices may have gone too far, too fast. Here’s a look at five trends that helped shape the market over the last year:
Two bull markets in one
Wall Street’s big rally actually had two distinct stages. Early on, Big Tech stocks and winners of the suddenly stay-at-home economy pulled the market higher. Amazon benefited as people shopped more online, Apple hoovered up sales as more people worked from home and Zoom Video Communications surged as students and adults started meeting online. Tech stocks as a group are the market’s biggest by value, so their gains helped make up for weakness across other sectors as the economy continued to struggle.
Since last autumn, though, excitement for an economic liftoff has caused a more widespread upturn. Banks, energy producers and smaller companies whose profits would be the biggest beneficiaries of a stronger economy have led the way, as coronavirus vaccines roll out and Washington delivers even more financial aid. Those gains are also picking up the slack for technology stocks, which have lost momentum as interest rates rise on worries about higher inflation.
First-time investors join and the game doesn’t stop
Stuck at home with little to do, people looked for ways to use some dollars that might have otherwise been spent on a movie, restaurant meal or vacation.
Many turned to the stock market via their phones, as trading apps made it easy to buy and sell shares with a few taps, commission free.
Clients under the age of 40 accounted for 35% of trading last month at Charles Schwab, nearly double the rate of two years earlier. Accounts less than a year old are doing more trading in total at Charles Schwab than accounts that have been around more than 10 years.
Many of those traders have been using money they got as stimulus payments from the U.S. 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 out checks for those amounts last spring, just after the stock market hit bottom, 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 what stocks to buy. They’ve been helping to push up the stock market broadly, but their influence is most evident in what have come to be known as “meme stocks.” GameStop surged 1,625% in January, for example, even though the video game retailer has struggled financially. The gains for GameStop, AMC Entertainment and other meme stocks defied gravity — and, in the opinion of nearly every professional investor on Wall Street, common sense.