What's Behind the Rise of the Pandemic's Bull Market?

WSJ What's News
|

Automatic TRANSCRIPT

Year ago today. Us stocks bottomed out but since that pandemic plunged something almost unimaginable happened. Wall street quickly shifted from bear to bull market setting new records along the way under center for serie. We wanted to take a look back to see how we got here and discuss where we might be headed next to do that. I'm joined by the wsj's caitlyn mccabe. She's on the market speed and is well equipped to explain all of this caitlyn. Good morning hi. Thank you so much for having me. So caitlin at the beginning of the pandemic we saw three major stock indexes plummet the s. and p. five hundred fell by thirty four percent in just twenty three trading days now fast forward all three have rebounded strongly. The dow is up around thirty three thousand mark so big picture. What played into this turnaround. Yeah so the. It was an exceptionally fast turnaround. We saw this incredibly steep and quick plunge and then it took just one hundred twenty six trading days to recover back to the february nineteenth closing level where we were before the sell off. That happened coinciding with the covid. Nineteen pandemic so. It was one of the fastest recoveries on record after such a steep plunge and i mean really the the climb back started with investors piling back into growth and tech stocks and that's carried so much of the market upward four the last year since you mentioned tech stocks. It's important to stress. These gains have not been seen across all sectors. Exactly so you know after. We reached this bottom on march. Twenty third twenty twenty. It became pretty clear pretty quickly. That investors were concentrating their money in growth stocks and big tech stocks. And so you saw big gains right off. The bat in what traders liked to call the fang stocks and so that stands for facebook apple amazon netflix in google's parent alphabet which spells out the acronym fang and these companies are so large and they comprise so much of the snp that was helping push the s. and p. five hundred up but you weren't just seeing growth and big tech. You're seeing of course you know Traders really interested in in companies like tesla. You're seeing zoom. You are seeing just all of these growth in tech companies Rising because i mean one simple explanation for it is that they were the companies that were standing to benefit the most from the pandemic shopping online. You had people using cloud computing and you know video messaging software and things like that and so that was really driving the market upward. You know of course. There is from time to time rotations into cyclical stocks and more of your industrials and energy and banks. But it really was for so much of twenty twenty just the growth in tech leading s ahead and then caitlyn more recently. We've seen a stall in us stocks. The nasdaq briefly went into correction territory earlier. This month last week. All three major indexes lost ground. What's going on here. So since the start of the year. We've seen this really steep and swift move up in bonney olds and that's had a ripple effect across the market so the short version is basically that the economy is recovering people are getting vaccinated and investors are really looking ahead to summer or fall where things might be returning back to normal and so of course there have been some concerns of inflation creeping into the market and so that's driven bond yields up which has an impact on assets across the market and so investors have been dumping shares of tech companies Basically because you know higher yields can mean higher borrowing costs for for businesses and higher yields also make investors reevaluate. How much they're willing to pay for. Future earnings and because significant earnings for tech stocks are expected to come in the future. It makes investors basically question how much they're willing to pay for those earnings. So you're seeing investors pullback from tech. You're seeing quite an uptick in energy and banks and and other cyclical stocks so. It's going to be really interesting to see how long lasting trend s and finally kaylin you talk to traders and analysts as a markets reporter. What's peaking your interest for the future. I think we're in this really interesting period in markets. Where right now so much of what's happening in the growth versus value trade is very fundamentals based and people are trying to evaluate the impact that yield will have on tech stocks like i mentioned in growth companies and what that will mean for banks and energy companies and everything that we've talked about so far but then you have this whole other segment of the market that is less connected to fundamentals right now. You know we saw the massive rise in the minimum stocks earlier. This year the game stops the amc's of the world you know we have this ongoing specs craze Cryptocurrency at that market is incredibly interesting. It's just gonna be really interesting because you have these two kind of branches of the markets that are going on right now. Where there's just this euphoria in some segments and then everyone is also trying to drill down this value versus tech trade. So i'm just going to be really interested to see what happens especially in these other segments of the market as we see more interest among retail traders as we see the spac craze probably only going to continue to grow and see what effect that has on the broader market

Coming up next