Starting with the last week in July and for the first three weeks of August, investors celebrated that the S&P 500 had advanced for four consecutive weeks, culminating with it passing its pre-COVID peak from February 19th on August 17th.
For perspective, recall that the S&P 500 closed at a then record high of 3,386 on February 19th and just three short and very painful weeks later, the S&P closed under 2,500, a drop of 26% in about 16 sessions.
Then, on August 17th, the S&P 500 eclipsed that February 19th high in mid-morning trading, and it managed to mostly stay there. With a rally of near 50% since the lows of March, the S&P 500 is now in positive territory year-to-date.
Yet while the positive YTD number for the S&P 500 is welcomed of course, it is also worth remembering when the COVID-shutdown led to the fastest-ever bear market from market peak.
Because now that the S&P 500 has officially passed its February high, it will go down as the second fastest bear market recovery in the past 50 years.
In fact, according to Dow Jones Market Data, the 126 trading days it took for the S&P 500 to reclaim its February high was over 10 times as fast as the index’s average historical rebound (1,542 trading days).
It seems as if the economic data of the past few weeks has been more positive versus negative. But it also seems as if every positive economic data set can be coupled with a negative data set too:
Yet despite the seemingly contradicting economic data, most everyone would agree that a post-pandemic recovery is occurring. It is the pace at which the recovery is occurring and how long a recovery might last, however, that brings plenty of disagreement among smart investors.
Let’s compare economic data today with where we were pre-COVID to better understand the current investing landscape and where it might trend.
| February 19th | August 17th | |
|---|---|---|
| S&P 500 | 3,386 | 3,389 |
| Fed Funds Rate | 1.59% | 0.10% |
| 3-Month Treasury | 1.57% | 0.90% |
| 10-year Treasury | 1.57% | 0.70% |
| Core CPI | 2.40% | 1.60% |
| Unemployment | 3.50% | 10.20% |
| Home Sales | 5.76m | 5.86m |
| S&P 500 12-month Projected EPS | $179 | $153 |
Source: FactSet, Federal Reserve Bank of St. Louis
Glass half-full investors will undoubtedly focus on the good news – the worst decline in our economy since the Great Depression took just 126 days to recover. And glass-half-empty investors will undoubtedly focus on the not so good news – weekly initial jobless claims hovering around 1 million and close to 30 million unemployed. And long-term investors would be well served understanding both perspectives.
Consider this simple bittersweet example:
Be honest, how does this make you feel? Probably happy on the one hand, less so on the other, right?
What should you do? Well, the answer to that question, of course, is deeply personal. That being said, it’s never a bad idea to better understand the current macro-economic environment to help make informed decisions. Maybe you can take the “on the one hand, but then on the other” approach?
Something like this:
We could play this game all day.
But the important point is that all this economic data is helpful as it informs your long-term investing decisions and asset allocations. But before you make any investing changes, make sure you talk to a financial professional to ensure that your assumptions are consistent with your risk profile and your financial plan.