S&P 500 Is Green for Second Month: Is It Sustainable?


Sep. 4 2020, Updated 6:51 a.m. ET

In May, the S&P 500 Index (NYSEARCA:SPY) closed in the green for the second consecutive month. In March 2020, the index fell 12.5% when the COVID-19 pandemic hit the global economy. The great historical shut down broadly impacted businesses and the stock market. However, SPY gained 12.7% and 4.6% in April and May, respectively.

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Factors behind market movement

The market showed a gradual improvement in the past two months. The improvement signals that market participants’ sentiment improved gradually. They expect the economy could get a V-shaped recovery after the lockdown. The V-shaped economic recovery generally signifies that the economy will show a strong and sustainable recovery after the strong depression.

In the current scenario, governments across the globe have been slowly allowing various businesses to reopen. Opening stores will help the countries increase their economic activity. However, there are still some restrictions on international travel, which might continue for the time being. The poor job market in April and very poor consumer spending in March increased the concerns about whether or not the market rally is sustainable. Read, Is US Unemployment Another Shock for SPY? to learn more. However, stronger macroeconomic data needed to strengthen the stock market’s movement.

S&P 500’s sector-wise performance

Among various sectors, the technology sector contributed the most to the S&P 500’s performance. The Technology Select Sector SPDR ETF (NYSEARCA:XLK) outperformed the market by providing a 21.9% return in the last two months. The Financial Select Sector SPDR ETF (NYSEARCA:XLF), which tracks the performance of the financial sector, returned 12.4%.

The Health Care Select Sector SPDR ETF (NYSEARCA:XLV), which tracks the performance of the healthcare sector, returned 15.9% at the same time. The strong demand for technology during the lockdown drove the performance of this sector. The remote work concept implemented by major corporate during this pandemic mainly increases the demand for technology. Online retailers also benefited due to this global shutdown.

Stocks such as Google (NASDAQ:GOOGL), Amazon, and Facebook returned 23.3%, 25.2%, and 34.8%, respectively in the last two months.

Read, Is the Fed Only Helping US Stock Markets Right Now? to learn more about how the Fed is helping the market in the current scenario.


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