A very happy anniversary for the stock market
NEW 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 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. It all led to a roughly 75% surge for the S&P 500 over the last 12 months and a shocking return to record heights.
Here’s are 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-athome economy pulled the market higher. 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 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.
FIRST-TIME INVESTORS JUMP IN >> Stuck at home with little to do, people looked for ways to use some dollars that might have otherwise been spent on entertainment 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 SPAC-TACULAR BOOM RAISES CONCERNS >> All the mania around stocks has raised worries along Wall Street that prices may have shot too high. Much of the criticism is focused on how much faster stock prices climbed than corporate profits.
Another potential signal of too much greed and not enough fear: Investors are so hungry for the next big thing that they’re pouring billions of dollars into investments, before they even know what the money could go toward. These investments are called special-purpose acquisition companies, though they’re better known by their acronym, SPACs. Armed with cash raised from investors, SPACs look for privately held companies to buy so that the company can easily list its stock on an exchange.
Last year, SPACs raised $83.4 billion, more than six times the prior year. They’ve already surpassed that level in less than three months this year.
A GLOBAL RECOVERY >>
The recovery has also been worldwide. Stocks from China, South Korea and other emerging markets as a group are up almost the exact same percentage as the S&P 500 since March 23, 2020. Japan’s Nikkei 225 index is also up a similar amount.
European markets have been lagging, although their performance is much better when seen in dollar terms instead of euros. Worsening infection rates are raising worries of a “third wave” on the continent and are forcing governments to bring back some restrictions on daily life.
WHO’S GETTING LEFT BEHIND? >> Even with so many first-time investors joining the market stocks, not everyone is benefiting from rising stocks. Only a little more than half of all U.S. households owned stocks in 2019, whether by day-trading stocks or holding an S&P 500 index fund in a 401(k) account.
Likewise, not every stock has participated in the market’s run higher over the last year. A handful of stocks within the S&P 500 are actually lower, and other early stock winners of the pandemic have also tailed off since the market took off a year agos.