A rotation in recent weeks from growth to value, large cap to small cap, and stay-at-home winners to economic recovery beneficiaries has pushed the benchmark higher.
Bloomberg: On the day record-keepers declared the U.S. is in recession, the S&P 500 powered past its level at the end of 2019, making whole anyone who has held stocks all year. Only one goal is left for the main benchmark for American equities: its record high from before the pandemic landed.
Just 53 days after bottoming with $10 trillion in value erased, the S&P turned green for 2020 after rallying for the ninth time in 11 sessions, capping a 47% rally since hitting an intraday low on March 23. Now, at 3,232, the index is less than 5% away from hitting a record high.
“I don’t think even the most optimistic bullish bull could have anticipated this,” said David Sowerby, portfolio manager at Ancora Advisors in Cleveland. “The words that comes to mind are epic, monumental.”
To say few saw it coming is an understatement. So fast and furious have been the gains that they have thrust the S&P 500 about 10% above the average year-end forecast of Wall Street stock strategists tracked by Bloomberg as of Friday. That big a gap has never opened before.
Storied investors of the past have been caught playing defense. Stan Druckenmiller — the hedge fund manager who in May called the risk-reward calculation for equities the worst he’s seen in his career — said on television Monday that he’s made about 3% as the index jumped 40%.
Denounced by many professionals and beloved by retail traders, the stock surge has shocked the Wall Street establishment. First it was the uninterrupted surge of megacap tech firms and stay-at-home beneficiaries, allowing the Nasdaq benchmarks to erase their 2020 losses a month ago. Now, a broadening of the rally deposited the S&P 500 into positive territory, too.
Maybe it’s warranted, especially after a shock labor market report last week showed 2.5 million jobs added and an economy on the mend. There’s also been unprecedented amounts of stimulus injected into financial markets and the economy, from both the Federal Reserve and Washington.
The skeptics aren’t convinced. Citigroup strategists including Tobias Levkovich warned that the delirious pace of gains today mirrors the frenetic selling that drove stocks too far down in March. A model designed by the bank to plot panic and euphoria, which tracks metrics from margin debt to options trading and newsletter bullishness, showed sentiment at the most extreme level since 2002, when the tech bubble was dissipating.
At Bank of America on Monday, Savita Subramanian’s team raised its year-end target to 2,900 from 2,600, citing tepid sentiment and high cash allocations among its bullish inputs. However, the team said risks from a second Covid-19 wave, the U.S. election, as well as risks to a snapback in consumption were among the reasons they weren’t more bullish.
The S&P 500 rose 1.2% Monday, extending gains after three straight weeks of rising more than 3% — a feat that had only happened one other time in the post-war era, according to LPL Financial. Since March 23, not a single stock in the gauge is lower, a sign of broadening participation.
A rotation in recent weeks from growth to value, large cap to small cap, and stay-at-home winners to economic recovery beneficiaries has pushed the benchmark higher and forced pessimists to rethink the market’s strength.
“At first I thought this market rally was a head fake, but when you see the breadth data, it’s quite impressive,” said Christopher Grisanti, chief equity strategist at MAI Capital Management. “There’s a lot of cash on the sidelines, there’a a lot of fear of missing out. We didn’t go into a black hole, we’re starting to emerge out of our homes, things are reopening.”