Banking on hopes that the economy will ultimately make a strong recovery, the stock market staged a robust rebound in April, with the S&P 500® surging 12.68% for the month.
The rebound in stock prices came as other areas of the economy dropped to recession levels amidst the global COVID-19 pandemic. Gross Domestic Product (GDP) contracted by 4.8% in the 1st quarter, which officially marked the start of a recession, according to the Bureau of Economic Analysis.
The surge in stock prices reflected an optimism among investors that the massive stimulus packages approved by Congress would help buoy the economy, and that the nation and the world would ultimately recover from the effects of the pandemic, precipitating a strong economic recovery.
Through the end of April, the S&P 500 was nearly at the same level as it had been one year earlier. It ended the month at 2,912.43, down just 1.13% from its April 30, 2019 level of 2,945.83.
While the timing of an economic recovery is impossible to predict, it could encompass nearly every aspect of the economy.
But getting back to previous levels will require a very strong rebound. For instance, GDP growth in the 1stquarter of 2019 was a solid 3.1% versus negative 4.8% in the 1st quarter of 2020. Unemployment a year ago was at 3.8%, which marked the lowest level in 50 years, while unemployment today is approaching the highest level since the Great Depression. The S&P 500 12-month forward corporate earnings projection a year ago was $174.43 compared with $145.22 at the close of April this year. And oil is currently trading at slightly less than one-third of its price of a year ago. West Texas Intermediate (WTI), a grade of oil that serves as a benchmark in oil pricing, was at $63.91 a barrel a year ago compared with just $18.84 at the April close this year.
Once the nation begins to recover from the pandemic, GDP growth should start to recover, employment should pick up, corporate earnings should reverse course, and auto and airline travel should begin to approach previous levels, driving up the price of oil.
In the meantime, investors should expect to experience some volatility in the stock market as the recovery moves through various phases.
U.S. stocks rebound
The S&P 500 was up 12.68% in April, from 2584.55 at the end of March to 2912.43 at the April close. (The S&P 500 is a market-cap-weighted index that represents the average performance of a group of 500 large capitalization stocks.)
The total return of the S&P 500 (including dividends) was 12.82% for the month of April.
The NASDAQ Index was up 15.45% for the month of April. (The NASDAQ – National Association of Securities Dealers Automated Quotations – is an electronic stock exchange with more than 3,300 company listings.)