The S&P 500′s return to a record doesn’t tell the full story with 60% of stocks still with losses
The S&P 500 closed at a record high on Tuesday, wiping out losses from the coronavirus-induced sell-off and returning the market to pre-pandemic levels.
But while the index is right back where it started before the virus sent the market plunging, a CNBC analysis shows that the majority of stocks have yet to climb back to their prior levels. While the overall market crashed and then reached new heights between its previous high on Feb. 19 and new high on Aug. 18, only 38% of stocks in the index made gains over that time period. A majority, the remaining 62%, were negative.
In many cases, these still-reeling stocks are down significantly from where they were in February. While there have been a number of big winners — 43 stocks in total saw gains of 25% or more, including health care and technology names like ABIOMED (87%), PayPal (57%), and Amazon (53%) — there have been far more big losers.
In an interview on CNBC following Tuesday’s record close, Michael Yoshikami, CEO of Destination Wealth Management, described a “shift in demand” that explains why stocks haven’t moved in unison since the market’s last record.
“It’s not as if everything is rising,” he said. “You pull money out of names that really aren’t attractive given current conditions. And that money moves over to companies that are thriving in this environment.
CNN Business/Anneken Tappe
We’ll be stuck in this recession for years, economists say
America remains in a deep downturn and is running a serious risk of a worsening recession that will last at least another year, economists warned Monday.
About half of the National Association of Business Economists members expect US gross domestic product — the broadest measure of the economy — won’t return to its pre-pandemic level until 2022. A majority of those experts also say the US job market will be back to its February level in 2022 at the earliest.
Nearly 80% say there is a one-in-four chance of a double-dip recession — an economic downturn that begins to recover and worsens again before fully recovering.
NABE’s findings are based on 235 responses to its August economic policy survey.
Forbes/Pedro Nicolaci da Costa
Economy’s Outlook ‘Highly Uncertain Over Next Five Years’: Fitch Ratings
The economic outlook for the United States and other wealthy economies over the next five years is “highly uncertain in light of the unknown path of the coronavirus outbreak,” Fitch Ratings says in a new report.
The ratings firm says the coronavirus shock will create a lasting drag on world economic growth that goes beyond its forecast horizon.
“Our base-case projections show GDP in 2025 remaining around 3%-4% below the level implied by the pre-crisis trend in the 10 developed economies covered in the GEO,” Fitch Ratings said.
“This reflects our expectation that there will be supply-side damage from the shock from higher long-term unemployment and weaker investment.”
U.S. and global policymakers have shifted away from looking at the pandemic as a temporary if historic hit to the economy, and are now bracing for a more prolonged recession.
Worsening that prospect is the recent expiration of key relief measures for households and businesses, including enhanced jobless benefits that had been a life for many.
As of the end of July, some 30 million Americans reported going hungry and that number is expected to keep rising in the months ahead.
“Looking beyond the short-term dislocation of the economy, there is much evidence that a large, short-term collapse in output tends to leave lasting scars on the economy,” Fitch Ratings said.
Market timing when ‘clocks have no hands’ — Warren Buffett’s warning is as relevant now as it was in 2000
‘They know that overstaying the festivities — that is, continuing to speculate in companies that have gigantic valuations relative to the cash they are likely to generate in the future — will eventually bring on pumpkins and mice. But they nevertheless hate to miss a single minute of what is one helluva party. Therefore, the giddy participants all plan to leave just seconds before midnight.
There’s a problem, though: They are dancing in a room in which the clocks have no hands.’
That’s a quote from Warren Buffett’s letter to shareholders way back in 2000, but it resurfaced on Reddit on Sunday, with investors comparing it to the current stock market environment.
At the time, the Berkshire Hathaway BRK.B, +0.63% chairman was comparing those cashing in during the frenzy of the dot-com bubble to Cinderella at the ball.
“The line separating investment and speculation, which is never bright and clear, becomes blurred still further when most market participants have recently enjoyed triumphs,” Buffett wrote in the letter. “Nothing sedates rationality like large doses of effortless money.”
Today’s investor knows a thing or two about effortless money, as the disconnect between the market highs and the reality of the devastated economy has never been more pronounced, thanks in large part to the Federal Reserve’s commitment to pumping cash into the system.
Buffett’s fairy-tale quote isn’t the only thing harkening back to those heady tech days. The “Buffett Indicator,” which takes the Wilshire 5000 Index and divides it by the annual U.S. GDP, recently touched its highest level since right before the 2000 bubble popped.