Wall street is showing alarming signs after the best quarterly result since 1998
(Reuters) – growth in the U.S. stock indexes showed their best result in over two decades, has slowed in recent weeks as the surge in the number of cases of coronavirus threatens the U.S. economic recovery after a deep recession.
Given the fact that the S&P 500 index rose in the second quarter to 18%, while only 10% reached in February, a historic high, investors consider factors that may weigh on shares in the coming months, including the possible delay in the restart of the US economy and very high stock prices.
The S&P 500 index, recorded the strongest quarterly result since the “dotcom boom” in 1998, increased in April and may, and then stabilized in June after a market pullback in the second half of the month. World stock index MSCI stayed only 10% from February’s record high.
Despite the decline in the number of new cases of coronavirus in may, it rose again in June, easing investors ‘ hopes for a quick U.S. economic recovery after the crisis. Investor sentiment has improved in part due to the recent better than expected economic data.
A surge of coronavirus cases in the southern and Western States last week spooked investors. Florida, Texas, California and Arizona, which recorded the highest number of new cases of infection, accounting for nearly a third of U.S. GDP. California ordered some bars to be closed on Sunday due to the outbreak of coronavirus, while San Francisco has postponed the lifting of restrictions on business.
American stocks higher in recent months thanks to the trillions of dollars of stimulus measures from Congress and the Federal reserve system, as well as investor confidence that the fed is ready to take additional measures to support the economy and financial markets.
However, the rally strengthened some investors ‘ concerns, including about inflated stock prices. Ratio price/earnings of the S&P 500 index, followed very closely by investors, is now 22, which is the highest level since the “dotcom boom”.
The US stock markets showed strong growth during the second quarter due to shares of companies that have benefited from quarantine. Amazon (NASDAQ:AMZN) and other online retailers have become the growth leaders. Investors favor technology companies with strong balance sheets and resources to fight the deep economic downturn.
Dividends have become an additional reason to buy shares, given the decline in Treasury yields in recent months due to the uncertainty of the pandemic. The dividend yield of the S&P 500 is still attractive at nearly 2% compared to the 10-year Treasury bonds at the level of 0.63%.
However, the prospects of receiving dividends worsened. Few companies suspended or reduced payments to shareholders after dividends of participants in the S&P 500 reached a record level of $127 billion in the first quarter, according to S&P Dow Jones. Last week, the fed imposed restrictions on the payment of dividends and prohibited banks from repurchase of shares at least until the fourth quarter because of uncertainty caused by a coronavirus.
“We appreciate the neutral action on the strategic horizon, given the difficult conditions for profit and dividend payments,” – said the BlackRock Investment Institute in the medium-term investment projections for the year 2020.
(Noel Randewich and Sakib Ahmed; Translated by Caleb Davis. Editor Dmitry Antonov)