The S&P 500 is nearing records.
The major average closed in on all-time highs Tuesday after Russian President Vladimir Putin said his country had registered the world’s first coronavirus vaccine. While skepticism abounds around the vaccine, particularly its long-term effects and safety, the announcement helped to lift investor sentiment.
The S&P is now up nearly 4.5% year to date and nearly 46.5% from the March 23 lows.
Kathryn Rooney Vera, head of research and chief markets strategist at Bulltick Capital Markets, largely attributed the moves to government stimulus:
“If we don’t get an additional fiscal stimulus, then I think it will be ugly for the markets going forward. Let’s face it: we’re … very close to all-time record highs, and the main driver of that appreciation in the S&P 500 has been stimuli, both fiscal and monetary. … The combination of variables that we have right now is very fortuitous for the markets, which is why they continue to move higher, driven mainly by retail investors. … A Barron’s article came out very recently saying that 25% of recent market moves is brought on by retail investors. What I think is the bullish case here is the potential for a real vaccine. Maybe it’s not the Russian one, but potential for a real vaccine in the course of the next six months. If that’s the case, then we have the fundamental base, which is that nascent growth in U.S. consumption solidified. And if that happens, then this V-shaped recovery that we’ve seen thus far really has legs. From there on … what we need to see is some [retraction] of the fiscal stimuli because, really, what we’re seeing now makes the Lehman Brothers reaction seem like child’s play. We’re talking about trillions and trillions of additional fiscal stimuli in the market that’s already at record highs with consumption already growing, exacerbated by a Federal Reserve that’s really dramatically increasing its balance sheet.”
Sam Stovall, CFRA’s chief investment strategist of U.S. equity strategy, chalked the market’s strength up to optimism around vaccine progress and the possibility of additional stimulus:
“I think it’s not specifically focused on the Russian virus information but rather the implication that the whole world is getting closer to some sort of a vaccine, some sort of a cocktail. … So, it’s really just, I think, enthusiasm that we are progressing from a health-care perspective. … And I believe that there will be a stimulus package, but I think that because of the disagreement going on so far, that implies that we are not likely to get an additional package beyond this. So, I think that we are seeing a bit of a rally in anticipation of a final passage.”
Goldman Sachs’ chief U.S. equity strategist, David Kostin, found it worthwhile to focus on long-term growth:
“The positive expectations on the medical front have certainly been one reason for expectations the economic activity is likely to turn up. In Goldman Sachs’ economics forecast for next year, average annual growth for the U.S. economy [is] around 6.2%. Consensus right now is around 3.9%. So, it’s certainly a more optimistic view than many people have on the level of business activity for next year. That does translate from an equity market perspective into better growth. So, the question then is how should portfolio managers position themselves in that kind of a backdrop? And the idea of better growth still rests with technology. So … in terms of the day-to-day rotation maybe we’ve seen today or the last couple of days I think is maybe missing the fundamental issue that rates, interest rates, are likely to stay extremely low. … But the idea of better growth longer term is what characterizes the technology stocks more than anything else and the longer duration, the better growth long term, is more valuable, is more prized, in a low-rate environment. So, that’s the story, if you will, behind the tech argument. That’s what I would put forward as to why to focus on the longer-term growth.”
