by Maurice (Mo) Spolan, Investment Research Analyst
The S&P 500 closed last week at an all-time high, which re-established a bull market, based on common definitions. The bellwether index eclipsed its February peak in just 126 trading days, which is 10 times faster than the average bear market recovery throughout history. The market bounce has been led by technology stocks, as exemplified by Apple, who, last week, became the first company ever to achieve a $2 trillion market capitalization. While technology companies have been largely unencumbered by the pandemic, CNBC reports that a majority – 62% – of stocks in the S&P 500 remain below their all-time highs. In particular, laggards are concentrated in sectors such as Financials, Energy, and Travel & Leisure, where the greatest economic damage is taking place. The S&P has been able to stage this recovery, despite many companies still struggling, because the index is market cap-weighted, which means that the largest companies have the greatest impact on the index’s price. Presently, the largest constituents are technology companies who, as noted, have benefited from the pandemic, economically speaking.

This phenomenon also helps to explain how the stock market can thrive while the broader economy contracts: the big tech companies have a much greater influence on the price of the S&P 500 than they do on economic output. To illustrate this point in broad strokes, consider that the combined revenue of Amazon, Apple, Facebook, Microsoft and Google amounts to less than 5% of U.S. GDP, while the market capitalizations of such companies account for over 20% of the S&P 500’s value. While U.S. GDP reflects the cumulative output of hundreds of thousands of small businesses, in addition to large technology companies, the stock market more closely tracks the performance of the very biggest corporations.

by Maurice (Mo) Spolan, Investment Research Analyst
The S&P 500 was up 0.7% last week, as the index now rests less than 1% below its February all-time highs. The Barclay’s Aggregate Bond Index, by contrast, was down 0.9% as interest rates rose (bond prices decline when rates increase).

The headline economic figures of the week pertained to consumer spending, jobs and inflation. Retail sales increased 1.2% in July, a sharp deceleration from June’s 7.5% gain, but still a healthy figure in the midst of a pandemic. On the jobs front, unemployment claims fell below 1 million for the first time since March, an indication that Americans are returning to work. Last, inflation jumped 0.6%, the largest one-month increase since 1991. However, CPI is running at a moderate annualized pace of 1.6%, below the Fed’s 2% target, and more sustained hints of inflation will be required before the central bank adjusts its highly-stimulative stance.

As the presidential election looms less than three months away, Joe Biden made news by selecting Kamala Harris as his running mate. The Wall Street Journal reports that traders are bracing for a choppy finish to the year, as market volatility has historically been above average during election seasons. Also, in the political sphere, Congress broke for summer recess without passing another round of stimulus. While President Trump hopes to provide support by way of executive order, the constitutionality of his plan remains in question. The economy, particularly the consumer, is likely to suffer if no further fiscal stimulus is delivered.