The U.S. economy remains battered by the coronavirus outbreak and Congress is deadlocked on another stimulus bill – yet the U.S. stock market just closed at a record high. Has Wall Street missed the news that we are in a pandemic?
On Tuesday, the S&P 500 closed at 3,389.78, surpassing the closing high of 3,386.15 from Feb. 19 – confirming the end of the its shortest bear market in history.
“Main Street lives for today, whereas Wall Street focuses on tomorrow,” said Sam Stovall, chief investment strategist at CFRA. “There’s been a massive amount of monetary and fiscal stimulus… and there’s a rising confidence that pharmaceutical firms are getting closer to a vaccine.”
The Federal Reserve kick-started the rebound into risk assets by pledging $3 trillion in unprecedented monetary support, going so far as to buy corporate bonds. That led to many investors repeating the mantra: “Don’t fight the Fed” as they swooped in to follow the central bank’s lead.
Investors crowding in a cluster of technology and internet stocks that have come to dominate the S&P 500 have heightened concerns that the index may be vulnerable to sharp reversals if holders decide to sell all at once.
Just five stocks – [Apple, Amazon, Alphabet, Microsoft, and Facebook] – account for more than 22% of the market cap of the entire S&P 500 index. Last month, 74% of fund managers in a BofA Global Research survey said holding tech stocks is the market’s “most crowded trade.”
Tech stocks look increasingly attractive given historically low yields in the bond market that limit possible future returns, said [Jeff Buchbinder, equity strategist for LPL Financial]. While the scorching rally in tech sector stocks seen in the second quarter has eased somewhat this quarter, the sector continues to outperform the broad market. “The gap between the winners and losers is widening and the strong are getting stronger,” he said.
MacDailyNews Take: Apple leads the way. As usual.