The new all-time high of S&P 500 this week beats a new mark for the indicator: from the lows of March 23, 2020 (2,237.4 points) to the highs of August 16, 2021 (4,479.71) its price it’s been duplicated. An increase that has also been developed in only 354 sessions, the shortest time recorded to date.
It is not easy for a stock index to double in price in less than a year and a half (17 months), a stock market feat that is more evident when you see what the previous record was, curiously not too far back in time: the lows of March 9 of 2009 were not folded until April 27, 2011, 540 sessions later.
What happened? There is data that supports the increases from a technical point of view. For example, never sales of the components of the S&P 500 had grown 21% in a year as it has happened in the last.
Neither never profit margins had reached 13.6% as in the second quarter of this year, not to mention the good macro data of the United States economy.
However, the reason for the companies that have more weight in the S & P500 to rise so much is due to their status as multinationals and large technology companies, which allows them to benefit from the end of mobility restrictions due to the pandemic.
Impact of technology
22% of the capitalization of this entire index of 500 components is made up of Apple, Microsoft, Alphabet (Google), Amazon and Facebook. And the more they go up, the more weight they have in the index, with which their importance continues to grow.
However, there are also reasons to be suspicious. The stock market is a market of expectations, and although the business results of the last quarter were very good, and also better than expected, that does not mean that they will be repeated again to justify certain valuations.
An alarm signal is offered by the analysts themselves: 20 years ago there was not so much difference to the upside, between the price at which the S&P 500 trades today and the “target price” that they assign to the index. Perhaps there is too much faith that the rise will continue to widen for longer.
By law of contrary sentiment and this warns us of how dangerous it is that there is so much optimism. In addition, few are deceived, despite the economic and business good streak after the 2020 debacle, it is the Fed’s policy that is helping the stock market the most.
The enormous liquidity in the markets has been working for Wall Street since March 2009 to the point that many traders have not seen a lasting downtrend for more than a decade, which is more than a scare of weeks like 2020.
And there are more and more statements from members of the Fed and monetary policy experts, who warn that the feeding it should start sooner rather than later. It is true that they are very prudent testimonials because there is fear of how they may affect the markets.
And the fact is that, although it is still premature to talk about rate hikes in the United States, there are few justifications for the Federal Reserve to continue flooding an economy with an economy with liquidity. employment rate so tall and a inflation above what is desirable.
It is not only ultra-lax monetary policy that has helped the S&P 500’s fast uptrend, but also the spending and investment policy of the S&P 500. Biden government, already started by Trump.
Direct aid to families boosted consumption and companies are benefiting from it. There is little concern about reducing levels of deficit Y debt of the Administration, and both parties have just agreed a infrastructure plan billionaire who, in addition, will develop for years.
In short, there is some vertigo behind such a large and fast rise, but it is a movement sustained by corporate results, government support and monetary policy. And furthermore, any technical analyst would add that the uptrend it looks very clear in the graphics.
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