When the S&P 500 hit an all-time high on August 18, this wasn't just any new all-time high.
Technically, the record meant the end of the bear market that started in February when the index began its fall of more than 20% from its previous all-time high. It fell by about 34%. The round-trip into and out of the bear market took just 33 trading days, smashing the old record of 67 trading days set in 1929. And the record made it official that we are now in a new bull market, which began at the market's March 23 low.
So to market observers, this was a milestone to celebrate. The benchmark index went on to close Friday at another new record high.
What does it mean to or for you? That's harder to say. To answer, it helps to consider the reasons that the stock market has picked up where it left off before the pandemic, even if the economy and American life have not.
It's hard not to notice the dramatic difference between Wall Street and Main Street right now. The market is soaring while millions of Americans are still unemployed, canceling vacations, and wondering when their kids will be able to go back to school.
It's said often but easy to forget: Stocks are not a measure of today's economy. They represent bets investors are making on the future. So it's common for Wall Street to rally even as unemployment numbers look grim.
Stock prices are forward looking, while economic data looks back at what already happened. The Dow Jones Industrial Average and the S&P 500 indexes almost always rise months or even a year before good news shows up in government reports.
There is some good news in those government reports, too. Earlier this month, new weekly unemployment requests fell below 1 million for the first time since the pandemic hit. They inched back above 1 million this week, so the weekly jobs report is a mixed bag. Still, the range is less than the 1.3-1.5 million in claims filed each week during June and July.
Meanwhile, reported Covid-19 infection rates are down over the past several weeks, and deaths are lower too.
Americans are still shopping. Consider Target earnings, released this week. Profits jumped 80% last quarter, helped by curbside pickup, which jumped 700%, and millions of new website customers. Electronics sales were up 70%.
Other large retailers like Walmart and Amazon have similar stories. In fact, stocks in the consumer discretionary sector, companies that sell goods like automobiles and clothing, are up 28% in the past three months, outpacing much of the S&P 500's growth.
Only one sector has performed better: technology.
You can't talk about this rally out of the bear market without talking about Big Tech. Five companies — Apple, Amazon, Microsoft, Facebook, and Google parent Alphabet — make up 25% of the increase in the S&P 500.
Some smaller tech stocks, like Zoom, have seen increases of 400% or more.
All those companies have benefited from the surge in remote work and the increased time many of us have spent online the past few months.
Goldman Sachs took a shot at predicting the future this week and upgraded its views on the near term. Because the firm believes the outlook for a Covid-19 vaccine is positive, Goldman expects that stocks could continue to rally through the end of the year. It predicts the S&P 500 will rise another 7% by New Year's Day.
Bad news could change such outlooks, and many uncertainties lie ahead. If there's a delay in the vaccine or Wall Street doesn't like the results of the November election, or if there's some other unpredictable event in world geopolitics, traders could get spooked like they did in March.
But if there's a lesson to be learned from the record-brief Covid-19 bear market, it's this: Most investors who got spooked and pulled money out of the market during April and May regret that choice today.
Long-term investing requires sensible, considered decisions followed by an ability to ignore day-to-day market moves. So what does this week's all-time high mean for you? If you fell asleep in January 2020 woke up in August, you'd think your portfolio had a solid year. Remember that the next time the market has a bad week.
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