S&P 500 Back at the High, What Now?

The S&P 500 recently surpassed its previous all-time high, marking the fastest recovery from a bear market in history. Matthew Bartolini dives into the event and offers insight in his latest post.

On August 18, 2020, the S&P 500 surpassed its previous all-time high, which it had hit on February 19, 2020. This marks the fastest recovery from a bear market in history, coming in at 159 days from the date of the 20 percent drawdown and far outpacing the prior “quickest recovery” titleholder of 248 days, which occurred in 1967. In fact, this is more than 1,000 days faster than the average recovery time, which is 1,160 days.

Date of 20% Drawdown

Date of New High

Days to Recover


































Source: Bloomberg Finance L.P. as of 8/18/2020.

A swift recovery
The rationale for the swift recovery is partly driven by the fact that the selloff was equally swift, driven by necessary — but temporary — economic shutdowns to combat the spread of COVID-19. The shutdowns resulted in transitory headwinds that impacted sentiment and led to a market decline. Unfortunately, however, the unprecedented nature of the pandemic has also led to systemic headwinds – and those may carry on for generations, considering how radically our daily routines have been upended.

Time, while quick, has also been a friend. As some communities have begun to reopen – although they remain far from returning to “normal” – improving confidence has been reflected by various economic indicators (i.e., manufacturing activity, homebuilder confidence, and unemployment) beginning to move in the right direction. Encouraging news regarding a potential vaccine is also partially offsetting the negative health news of surging case rates in some hot spots in the US.

Lastly, and more importantly for financial assets, since the nadir of the market, significant fiscal and monetary stimulus has been implemented around the world. This has been a positive for the consumer via increased unemployment benefits, and for corporations, with funding provided to help them remain in business and not add to the unemployment levels. The stimulus, overall, has so far offered stability and liquidity to a market and economy teetering on the brink.

Diving deep into a narrow narrative
This “rally back tide” has not lifted all boats, however. The narrow market climb to the top is illustrated by the chart below, which shows the percent of stocks above their February 19 highs. Only 39% of stocks are trading above their individual pre-crisis levels, and there are significant differences across sectors.

Source: Bloomberg Finance L.P. as of 8/18/2020.

It is also worth pointing out that just 44% of S&P 500 stocks are positive year to date, as shown below. In comparison, 91% of S&P 500 stocks were positive in 2019. Also, analyzing a broader measure of US equities (the S&P US Composite 1500 Index) reveals that only roughly 37% of those stocks are positive in 2020 – one reason that the broader gauge itself is still below its February 19 high.

Source: Bloomberg Finance L.P. as of 8/18/2020

But, wait! Like in a TV infomercial, there’s more! The percent of stocks not above their February 19 levels is not the only indicator of a narrow market. The chart below shows that just five sectors are trading above their February 19 prices. Similarly, if we break down the S&P 500 by specific styles (Growth, Value, and Equal Weight), only two (both growth) out of those five exposures are above their February 19 levels.

Source: Bloomberg Finance L.P. as of 8/18/2020.

What does all this mean?

The better gauge for a “we are back” mentality is the percent of stocks with gains in 2020 and/or those above their February 19 levels. Those two metrics are noticeably low and would need to improve well beyond a 50% level before a strong “we’re back” conviction could be uttered. Any celebration of current market environment also requires acknowledging how quickly we could fall back below this new all-time high, given the narrowness of the rally.

Mainly, the S&P 500 reclaiming its record is a nice media storyline to showcase how quick the rally back has been.  However, understanding how the market recovered is more important. And based on the data above, this rally has been predominately driven by large-cap growth technology-related (i.e., FAANG) stocks. But that doesn’t mean that smaller firms in some areas haven’t benefited from this societal sea change. In fact, some mid- and small-cap growth firms have outperformed large caps since the market’s bottom – so opportunities do still exist outside of a small collection of large stocks. 

The fact that the S&P 500 is back to where it was in February is also merely a function of mathematics — and that highly weighted tech-related stocks have had strong performance. Looking ahead, they may continue to do well, considering how integral technology and software have become in our more digitally connected but physically separate world. But their strength should not obfuscate the potential opportunities throughout the cap spectrum and across a multitude of sectors of firms driving innovation in our new society.