MANHATTAN (CN) — A year in the books since Covid-19 took hold, and markets have shown their resiliency by not just surviving the pandemic but thriving.
On February 12, 2020, investors began to see the writing on the wall, even as politicians and others claimed the virus would be short-lived. The Dow Jones Industrial Average was at a high of 31,458 points, while the S&P 500 and Nasdaq were at similar high points.
But that all came crashing down in a matter of weeks. Several routs on Wall Street triggered circuit breakers that temporarily halted trading, but the losses quickly added up. By March 11, the longest bull market in U.S. history came to a close.
The next day, the World Health Organization declared Covid-19 officially a pandemic, after which then President Trump declared Covid-19 a national emergency and banned non-U.S. citizens from traveling from Europe. Several states, including California and New York, were about to lock down.
On March 16, 2020, the Dow would suffer its second worst drop ever, losing nearly 3,000 points in a day.
Things would improve later that spring, with investors becoming accustomed to wild swings in both directions, and today the markets seem to be pointing ever upward despite lingering economic problems and the threat of inflation.
“The damage has been widespread but there are plenty of signs of hope and it shows in the economic markets,” said Daniel Rodan of Tower Bridge Advisors. “Are we out of the woods with regard to Covid-19? No, not at all, but we are getting closer.”
On Friday, the Dow finished the day’s trading at 32,777 points, roughly 1,300-point increase for the week and more than 10,000 points higher than a year ago. The S&P 500 has also done well, gaining 100 points over the last week and 1,400 points over the last year.
The Nasdaq, which flourished once lockdowns took hold due to the index’s tech-heavy load, has struggled in recent weeks but still closed out trading on Friday with a 400-point weekly gain. The index is 5,719 points higher than it was on March 12, 2020.
“The macro forces that have caused this rotation from growth/tech to value/cyclicals haven’t abated, at all. If anything, they’ve gotten stronger in the last few days,” Tom Essaye of the Sevens Report wrote earlier in the week.
He noted that tech stocks are falling because the coronavirus is receding, re-openings are accelerating, and the stimulus hit its $1.9 trillion advertised price tag. “All of these factors should lead to explosive economic growth for the remainder of the year, and that favors cyclical sectors [such as financials and industrials],” he wrote.
According to Johns Hopkins University, more than 118 million cases of Covid-19 have been reported worldwide, with more than 2.6 million deaths. In the United States, well over 29 million Americans have contracted the disease, while 530,000 have died.
On Thursday, President Joe Biden signed the $1.9 trillion American Rescue Plan, the third and largest stimulus bill since the pandemic began. It includes direct payments of $1,400, additional unemployment benefits, funds for state and local governments, and moratoriums on evictions and foreclosures.
While the stimulus is widely hailed by economic experts for its impact on the near-term, inflation remains a concern. David Mericle, an economist at Goldman Sachs, says the $1.9 trillion will provide “a large, front-loaded boost to the level of GDP,” but that it may also force the Federal Reserve to become more conservative in its approach, hiking interest rates in mid-2023.
As of February, core consumer price index inflation is up 1.3% for the year, according to data released earlier in the week by the Bureau of Labor Statistics.
Paul Ashworth, chief U.S. economist at Capital Economics, predicts that while inflation is relatively quiet now, it is “about to roar into life” later in the year. “The reported decline in core CPI inflation rate to only 1.3% in February appeared to make a mockery of fears that price pressures are building,” he wrote. “But we would characterize this as the calm before the storm.”
Main Street is also doing better since last spring, though the economy has been propped up by both monetary support from the Fed — whose balance sheet has increased by more than 60% in the last year — and fiscal support out of Congress. According to data compiled by ING, the net household wealth increased from $118.2 trillion in 2019 to $130.2 trillion last year.
One sticking point is the stubbornly high unemployment rate: The number of Americans seeking jobless benefits is 500,000 more than those seeking benefits the week of March 7, 2020. While steadily declining and a far cry from the millions of new weekly claims seen last spring, initial unemployment claims remain above 700,000 per week.
Consumers nevertheless have grown far more confident in the economy. The University of Michigan’s consumer confidence index showed a healthy increase to 83 from 76.8 in February. The index is now at the highest point since the pandemic took hold — the index stood at 89 points last March — but still well below the 101 in February 2020.
“Overall, the data indicate strong growth in consumer spending during the year ahead, with the largest percentage gains for services, including travel and restaurants, and the smallest increases for vehicles and homes,” said Richard Curtin, the survey’s chief economist, in a statement.Follow @NickRummell
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