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In a single chart: Why the S & P 500 is just not being penalized regardless of the U.S.'s incapacity to comprise COVID-19

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Here's a strange twist on the American state of emergency: US stocks, measured by the S&P 500 benchmark, hold their own against European rivals, although US coronavirus cases are on the rise and threaten the economic recovery, while European countries appear to be largely breaking out Control.

Corona virus update: Worldwide cases of COVID-19 rise to over 13 million as California, Hong Kong and India reintroduce restrictions on movement

Oliver Jones, Senior Markets Economist at Capital Economics, argued in Tuesday's announcement that the phenomenon was more than the valid, but often cited, over-weighting of technology and healthcare companies in the S&P 500
SPX,
+ 1.34%.

In particular, he emphasized that the index “also includes almost all of the world's largest listed companies, including several global monopolists with huge cash reserves. ”

“Taking industry patterns into account, large companies with strong balance sheets were able to weather the storm of the coronavirus crisis much better than most others. Some have even used it as an opportunity to secure their dominance and raise the assets of weakened potential rivals, ”he said, noting that the five largest companies have announced“ remarkable 18 acquisitions between them since the crisis began. ”

Jones noted that unlike the S&P 500, US small cap indices, which do not share the S&P 500's sectoral benefits and are more exposed to the domestic economy, have fallen sharply since June 8th and perform far worse than their European colleagues. (see table below).

CAPITAL ECONOMY

The number of new cases in the US continues to rise, while in most Western European countries the number has remained constant or decreased in the past two weeks, according to a New York Times tracker.

In the meantime, the S&P 500 has "performed no worse" than the major European indices, although real-time data suggests that the recovery in the US has stalled, although the reopening in Europe continues largely, Jones said.

Jones argued, "What is most striking is that the relative performance of large-cap stock indices has at least as much to do with global industry patterns as with domestic economic performance."

However, he warned that once the US has its viral outbreak under control, this will have a large "counterintuitive effect" on relative performance – "the S&P 500 may not be the greatest beneficiary."

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