Politics

S&P 500 Closes With A Record High, Erasing All Losses Since The Pandemic Hit

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Stocks roared past their all-time record highs on Tuesday, powered by rising tech shares and robust quarterly earnings from retailers such as Walmart and Home Depot.

The S&P 500 index closed with a record high of 3,389 on Tuesday, erasing all losses since the coronavirus pandemic took hold. The Nasdaq Composite also closed with a new record high, topping 11,210. The Dow Jones Industrial Average closed slightly down, at 27,778.

The soaring stock market comes despite an unemployment rate of 10.2 percent and a Main Street economy that continues to be ravaged by the pandemic.

Even as many business owners struggle to keep their doors open and employees paid, segments of the tech sector and big-box retail are thriving in spite — or because — of the constraints COVID-19 has put on consumers.

President Donald Trump — who has a habit of using the stock market as a barometer of his administration’s success — touted its rise in a Tuesday morning tweet, crediting his administration and himself. “Jobs are flowing, NASDAQ is already at a record high, the rest to follow,” he wrote.

The U. S. economy added 1.8 million jobs in July, but the country has recovered less than half of the jobs lost in March and April, and the unemployment rate remains over 10 percent.

Economists say the market’s meteoric rise is, in part, a function of how the major stock indices are calculated. While the stock market includes thousands of listed public companies, the indices comprise just a tiny sliver of the very largest ones. The S&P 500 and the Nasdaq are both market-cap weighted, which means that, for better or worse, the fortunes of the biggest corporations overshadow the performance of the other companies on the index.

The combined market cap of the S&P’s top five represent 25 percent of the entire index. Apple alone has a market cap of around $1.9 trillion — a figure slightly larger than the entire GDP of Canada last year. In their most recent earnings reports, the five biggest companies in the S&P 500 — Apple, Microsoft, Amazon, Facebook and Google parent Alphabet — all notched gains. Walmart and Home Depot both reported higher-than-expected earnings on Tuesday thanks to unexpectedly strong sales.

“It’s not a broad-based recovery, but because the indices are dominated by a handful of companies, it has an amplified effect,” said Michael Eckton, CEO and managing partner at Crestwood Advisors.

“These are companies that have been beneficiaries, relatively speaking, of what’s been happening, and that’s having an amplified effect when the broader economy and many other stocks are still struggling,” Eckton said. These corporate behemoths have cash on hand, as well as lenders eager to let them borrow money at low interest rates, and they have options to get them through even a deep recession like laying off employees or spinning off business lines.

A small business, on the other hand, could be wiped out by a sustained slump in revenue, a reality many are facing today as federal assistance dries up. “You have companies on Main Street like your small mom-and-pop businesses — they’re much less likely to adapt because they’re living day by day,” said Luke Lloyd, wealth adviser and investment strate… (Read more)

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