Trading in the US begins this week with stocks less than 13% below the previous high. It’s anyone’s guess if the S&P 500 (NYSEARCA:SPY)will recover the Feb. 19 peak in the near term, but the bounce off the Mar. 23 low to date continues to give aid and comfort to optimistic thinking.
Regardless of what comes next, the recovery so far has dispatched a dramatic run. After collapsing nearly 34% in March in just 23 trading days – the quickest decline for a loss of that magnitude since 1950 – the market has rebounded sharply and speedily. The drawdown so far has been pared to -12.7% in just 43 trading days. If the recovery continues and reaches the previous peak within the next 15 trading days, the S&P will set a speed record since 1950 for climbing out of such a deep hole.
The current speed record for recovering large losses: 1982’s bounce, when the market rebounded from a 27% drawdown in just 58 trading days (not shown in table above). But that impressive run may be overshadowed by the 2020 bounce at some point. As of last week’s close (May 22), the S&P 500’s rise from the Mar. 23 trough has been running for 43 trading days. If a recovery unfolds before the 58th day of recovery, the rise will set a new post-1950 speed record for repairing such a deep drawdown.
The current rally off the Mar. 23 low has been unusually quick, but in terms of paring the drawdown the results to date still rank as middling vs. the previous top-10 peak-to-trough decline since 1950 (see chart below). The next several weeks, in other words, will determine if stocks are on track for a record-breaking run of one form or another.
Judging by S&P 500 futures this morning, the trading week is set to begin with a new dose of bullish fervor. As of 6:20 a.m. New York time today (May 26), the S&P 500 mini contract is up a sharp 1.8% today.
It doesn’t hurt that the latest numbers for Covid-19 continue to suggest that the worst of the crisis has peaked, at least for now. On that basis, the economic reopening across the country can continue. Consider, for example, that the daily change in US coronavirus fatalities dropped to 500 on Monday (May 25), marking a two-month low, based on data via Johns Hopkins University.
It’s premature to ring the all-clear signal, however. The World Health Organization (WHO) warns that the risk of a second peak may be lurking. “When we speak about a second wave classically what we often mean is there will be a first wave of the disease by itself, and then it recurs months later. And that may be a reality for many countries in a number of months’ time,” says Dr. Mike Ryan, WHO emergencies chief.
Keep in mind, too, that the US economic reports in the days and weeks ahead will continue to reflect a dark profile. For now, however, Mr. Market is inclined to focus on the case for optimism by looking ahead. It’s a precarious rebound but for the moment it appears on track to continue.