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The S&P 500 Index turned positive for 2020: Here's what that means for you

On July 13, the S&P 500 Index turned positive for 2020. Here are some of the reasons why the stock market is rising even as the coronavirus continues to spread.

Twenty/20

It would have seemed an unthinkable thing to say in March but on July 13, the S&P 500 index turned positive (briefly) for 2020. 

In the early days of coronavirus, the broad-based basket of stocks, often used as a proxy for the entire stock market, plunged 34%, hitting its recent low on March 23. Since then, it's risen nearly 50%, bringing investors right back to where they were on New Year's Eve. The index has, for now, shrugged off a global pandemic, record unemployment, economic fear and uncertainty, a trade war, a volatile election cycle, and everything else 2020 has thrown its way.

It's important to note the market has not yet recouped all the losses that can be blamed on the pandemic: The S&P 500 is still about 5% short of its February all-time high. Still, turning positive for 2020 represents a remarkable comeback and it provides a good excuse for you to pause and consider what's going on, what might happen next, and what you should do.

Why the market is rising even as coronavirus cases worsen

The S&P 500, like the broader stock market, is not a monolith, so it's difficult to point to one reason for the current rally. There are many possible explanations

Perhaps the simplest: Stocks are high in part because interest rates are so low. Savers know this; savings account interest rates, even at high-yield internet accounts, are falling fast.  Some money market funds are actually threatening they'll charge customers "interest." All this serves as a great incentive for retail investors to put cash into stocks.

There are some indications that the economy has shrugged off the pandemic, too. The unemployment rate has dropped, retail sales surged last month, housing prices have remained high, and even some corporate earnings have been better than expected. 

Numerous companies, particularly in the tech sector, have thrived during the pandemic, as millions of Americans shifted to working from home. Investors have rewarded tech stocks like Netflix and Zoom. 

And aggressive stimulus provided by the Federal Reserve and Congress have helped stabilize the economy.

What could happen next in the market

The case for stocks to go down: What's happening now looks a lot like what happened in the spring of 1930. Market historians remember that in the months following the 1929 stock market crash, the Dow Jones industrial average rallied about 50%, recovering much of its losses. 

But that was a mirage, or what's called a "bear market trap." As reality set in, and it became obvious the Great Depression would be a long-term drag on the economy, stocks began a slow, steady decline. Within two more years, stocks in the Dow had lost about 80% of their value.

"Stocks are [behaving] very much like that rebound in 1929 where there is absolute conviction that the virus will be under control and that massive monetary and fiscal stimuli will reinvigorate the economy," financial analyst Gary Shilling warned on CNBC in June.

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You don't have to look back so far to see this pattern, either. The dot-com bubble burst in March 2010, but by August the tech-heavy Nasdaq index had retraced about half its losses. Then the bottom fell out and tech investors had to endure two years of heavy losses.

And recall that we entered 2020 with many analysts calling for a market correction anyway or an outright end to the decade-long bull market. 

The most risk, however, comes from external events. What if there is a setback in vaccine research? A surge of deaths, or new negative economic numbers, or election results that rattle investors, or an escalation in trade tensions with China? Plenty of potential pitfalls remain.

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The case for stocks to go up: Bulls have plenty of good arguments, too. Tuesday was a great example: Good news from Moderna Inc. on its Covid-19 vaccine trial sent stocks soaring, a demonstration that there's plenty of optimism about the market waiting to be unleashed.

Both the Fed and Congress have stimulus tools left in their arsenal. And it's hard to ignore the opportunity ahead for tech companies like Amazon and Microsoft as businesses and homes are remade in the post-Covid era.

The case for stocks to go sideways: What if the market is entering a phase of dramatic lurches back and forth, but one that ultimately amounts to a flat line? That's the future predicted by analysts like Greg Diamond. He calls this a "round trip" market.

That's all the more reason to remember your long-term plan and ignore the daily ups and downs of the market. After all, if you look at a 200-day moving average of the S&P 500 since New Year's Eve, you get a rather boring flat line. Extend the time frame a little longer and you get a boring line with a slight incline, showing small but steady gains.

What investors should watch now

Short term, all eyes should be on the end of the month, when generous federal unemployment benefits are scheduled to end and some foreclosure and eviction protections expire. That could shock the economy and in turn, the market, if Congress doesn't step in with additional relief.

Beyond that, take comfort in the boring 200-day moving average line showing slow gains over time. If you are in it for the long haul, history says the odds are on your side.

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