After the markets hit new all-time highs, the tech bubble burst and erased $1.7 trillion in value. However, investors are still up $13 trillion, or more than 56 percent, since March lows.
The Nasdaq is up about 26 percent year to date and up 63.58 percent from its 52-week low of 6,631.42 on March 23. After remarkable gains in August, the market started September with more gains and then losses. The Dow Jones dropped 1.8 percent in the week leading up to Labor Day, while the tech-heavy Nasdaq dropped 3.3 percent, losing nearly half of its August gains.
Some observers blamed earnings disappointments, and some blamed whale-size option trading by SoftBank. Possibly it was concern over the virus, lack of progress on another relief bill and increasing tensions with China. Was it a warning?
Like the chief in “One Flew Over the Cuckoo’s Nest,” investors seemed stoic. By Friday afternoon, prior to Labor Day weekend, selling had turned to buying. Apple turned an 8.3 percent drop into a 0.1 percent advance. Was it a buying opportunity?
The U.S. economy contracted at a record rate last quarter. A slowing job market became another sign of a slowing economy. A summer surge in virus infections added to worries.
The Commerce Department said that the U.S. gross domestic product declined at a seasonally and inflation-adjusted 32.9 percent annual rate. It was the steepest drop in 70 years of record-keeping. The U.S. economy is driven by consumer spending, which represents about 70 percent of the U.S. economy. But if one can’t go to a restaurant or the hair salon, spending will decline. Spending on nondurable goods such as clothing and groceries fell by 15.95 percent. At the same time, spending on durable goods fell only by 1.4 percent. Plenty of stimulus money was not spent. The personal savings rate swelled, as worries over the virus and the economy caused people to retain cash.
The unemployment rate increased, with the number of people receiving unemployment benefits rising to 17 million in the week ending July 18.
While the economy slowed, the tech-heavy U.S. Nasdaq stock market traded at its highs, owing to stimulus from the government and the increase in money […]
With the first half of the year in the record books, we can reflect back. The S&P began the year at 3,231 and climbed to 3,386 on Feb. 19, when it took a sharp drop ending at 2,237 on March 23. Then the market began a seemingly V-shaped recovery and bounced up to the current level of 3,100 on June 30.
The market was aided by very supportive actions from the government. The Federal Reserve announced that it would do whatever it takes to keep the economy strong. The administration offered strong fiscal support through stimulus packages. The virus appeared to take a breather, which gave the market optimism.
As the stimulus packages began to wear out and the virus began to resurge, only the Federal Reserve was able to continue its support for the market. The Fed has almost unlimited ability to support the market through monetary policy, including even buying assets.
The administration has an appetite for disbursing money through various methods, but that could have a practical and political limit. The virus seems to be in charge. Hope for a vaccine stimulates the market, but fears of a new virus and resurgence […]
Financial results for the first quarter of 2020 have been reported by most members of the S&P 500, showing corporate earnings down 11.2 percent year on year, even though revenues were up 1.9 percent. Due to the COVID-19 virus, S&P earnings for the full year 2020 are expected to be down 23 percent or more. Growth is expected to resume next year, largely because of the easy comparisons with this year.
In the meantime, unemployment remains very high and rising. The Labor Department’s monthly employment report for April shows the jobless rate soared to 14.7 percent – the highest level since the Great Depression. The U.S. has lost 20.5 million jobs amid the coronavirus pandemic. Almost all the job growth achieved during the 11-year recovery from the Great Recession has now been lost in one month.
On June 5 (after this column was written), the Labor Department was to have released May’s employment report, and expectations were for 9 million additional people to have lost their jobs. This would increase the unemployment rate to slightly more than 20 percent. The Labor Department says the real unemployment rate is likely […]
At the beginning of this year, the U.S. stock market showed robust strength. Negative headlines were not enough to keep the market from rising; it continued its record-setting bull market run.
Then, just like that, it was over. The bull market did not end because of economic issues. This bull market ended because of a virus, and the growing realization of its impact on the global economy. The end of the market run was sudden and ferocious. Veteran investors were shocked and surprised. Warren Buffett observed that in all his years of investing, he had never seen anything like it.
Since the market is usually a forecaster of the economy, it appeared that the market was forecasting an event as big as the Great Depression, with unemployment at levels unseen at any time previously. Liz Sonders, chief investment strategist for Charles Schwab, said it was the Great Depression, the crash of 1987 and the 9-11 attacks all rolled into one.
Then on March 23, the U.S. equity market struck its low point for the year thus far. Since March 23, the market has been on a tear. First dismissed as […]
From its all-time high on Feb. 12, the S&P 500 hit a bottom of 2,237 on March 23. But will it still go lower this year? After the longest bull market in stock market history, the coronavirus dealt a body blow to the market. The market drop was the most precipitous in history. History tells us that the market will recover, but over what time period? Will it be a V-shaped or U-shaped or L-shaped recovery?
Since 1929, the S&P has suffered 14 bear markets, defined as peak-to-trough losses of 20 percent or more. That being said, bear markets result in declines of 39 percent on average, and last about 19 months. If this one feels particularly bad, it’s because it is. We’ve had a decline almost on a par with a typical full bear market cycle in just about three weeks.
Over the past 25 years, there have been seven virus-related market episodes. While there were market dislocations during these episodes, none of the infections were as contagious as the current coronavirus. While the Ebola virus outbreak in West Africa was potentially more problematic, it was contained quite quickly […]