Although it has not been a straight path higher, the S&P 500 index has logged 29 new record closing highs year-to-date. Retail investors have perhaps been emboldened, as the financial channels continue to spotlight the parabolic moves of latest “meme” stock(s) targeted by the WallStreetBets and other Reddit crowd traders.
Inflation concerns are rising. So, for this newsletter, we will focus on consumer inflation and the CPI, or Consumer Price Index. There are many variations of CPI, including month-over-month, year-over-year, seasonally adjusted, and with or without food and energy prices.
Year-to-date, the equity markets continue to show positive momentum, reflecting growing signs of the economic recovery and rising expectations for corporate earnings. The S&P 500 is up 11.5% year-to-date as of yesterday’s close.
Looking at 1-year returns, we are at an extreme moment in time. While the closing low for stocks in 2020 came on March 23rd, the 1-year returns from March 16th are still impressive: large cap, mid cap, small cap, and international stock indices have generally gained 60% or more. Treasury bonds, viewed as the safe haven, have not fared well due to rising interest rates. While the price of gold has increased over the past year, relative to the S&P 500, the performance is near the 10-year low seen in 2018.
Month-to-date, February’s stock market performance has certainly been making up for January’s disappointing end. There are several reasons for the equity market’s overall optimism, all of which point toward better days ahead for the economy.
While the expression often goes “time is money,” at Buckingham Advisors we believe a more fitting expression would be “money is time.” No one can have more time, and money cannot directly buy happiness, but having more wealth could allow you to focus more of your time on what you enjoy. Money is a tool, not something to be loved or feared in and of itself.
It is said that there often seems to be a disconnect between Main Street and Wall Street. Despite all the social and economic pain endured last year and the fastest market decline for the S&P 500 into bear market territory, 2020 ended with the S&P 500 rising 18.4% and reaching 33 new record closing highs. After last year, we really should be used to expecting the unexpected from markets.
It's worth noting that the S&P 500 has marked 30 new closing highs this year and rallied 64% from its March low as of yesterday’s close. The technology heavy NASDAQ Composite has registered 50 new closing highs so far this year. I am not sure if that is a record number of new highs in a single year for that index, but it is certainly impressive. In addition, after years of lagging their large size peers, small company stocks tracked by the Russell 2000 index have reached nine new record closing highs year-to-date.
Recently the S&P 500 hit a new intraday high, which was driven both by some certainty around election results as well as optimism for a COVID-19 vaccine on the horizon. The morning after election day, it seemed fairly clear that the Republican party would maintain control of the Senate. Stock markets rallied after having been positioned for a “blue wave” of Democratic control that would have led to more sweeping reforms.
October’s positive uptrend in the stock market has been a welcome respite. As of yesterday’s close, October’s month-to-date performance of the S&P 500 has basically made up for September’s decline. On a total return basis, the index is up 9.4% year-to-date and has gained 18.5% over the past 12 months. That is impressive performance considering we continue to live under COVID-19 rule in a partially opened economy, and it is only 18 days from a contentious election between two radically different candidates.