At least Wall Street investors are feeling good, or maybe just well-fed by Washington — for now.
The second half might tell if the optimism is warranted.
As the coronavirus loomed and then shut down nonessential retail and sent millions home this spring, the stock market tanked. But even though the U.S. is still just muddling by — millions are suddenly out of work and the high unemployment rate is still shockingly high at 10.2 percent — the market bounced back quickly.
The S&P 500 managed to shake off the coronavirus enough to hit a new all-time high this month and is up approximately 20 percent for the year, closing up 0.67 percent Friday to 3,508.01.
That could be read as a positive sign.
While the market specializes in knee-jerk reactions to the news of the day, in aggregate it is seen as a gauge of what investors think is on the immediate horizon. So stock gains now signal a bullishness that, somehow, this will all work out and businesses will be able to push ahead until there’s a vaccine for COVID-19 and life can return to normal.
But the prediction machine that is the herd impulse of money managers has been short-circuited by the trillions of dollars poured into the economy by the federal government and the realities of a crisis that simply falls outside both the experience of any investor and the algorithms that drive electronic trading.
“People are trying to explain the market, not trying to predict it,” said Simeon Siegel, an analyst at BMO. “Depending on who the market moved that day, the conversation and expectations are tailored accordingly.”
The retail/consumer star has waxed and waned throughout, with the sector sometimes seeming to be in big trouble with a spate of bankruptcies (Neiman Marcus Group, J. Crew Group Inc., J.C. Penney Co. Inc. and more), and then seen as thriving as the now-deemed-essential Target Corp., Walmart Inc. and Amazon rake in billions. So far this year, Target shares are up nearly 40 percent, Walmart is ahead approximately 23 percent and Amazon has shot up more than 90 percent.
But the glass is both half full and half empty.
Many are gravitating all the more to the stronger brands and companies, figuring that even if they get hurt by future shutdowns and other COVID-19 disruptions, they will weather the storm and even gain.
The safe bet is that companies like the active leader Nike Inc. and off-price giant TJX Cos. Inc., two companies Siegel signaled out as winners, have the brand and financial and operational muscle to make it to the other side and solidify their positions.
“Humans will always shop,” Siegel said. “Even if these companies would have been stronger without the pandemic, the reality is, they don’t need the pie to grow if they can gobble up more market share. There is no question the pandemic will be the end of many brands and at the very least many stores, but that demand has to go somewhere.”
Aside from the companies that are seen as just outright winners, Siegel is keeping his eye on brands that might come out of the crisis changed, but for the better, pointing to Under Armour Inc. Shares of Under Armour, which closed up 2.01 percent to $9.14 apiece Friday, are down more than 46 percent year-over-year.
The analyst said large brands that simply weren’t making very much money can use the crisis to sharpen their businesses.
“They would be better off taking the pandemic to press pause to reevaluate how large they should be and get smaller,” Siegel said.