As stunning as the coronavirus-fueled market collapse was in February and March, so too has been the subsequent rebound.
After sinking 34% in 23 trading sessions, the S&P 500 surged 27% over the following 16 sessions, as of Tuesday's close. It’s enough to give even the most veteran investors whiplash.
Suddenly, the most optimistic forecasts of a V-shaped recovery in markets are looking more likely, even though plenty of risks still abound. It’s a surprising, yet welcome, development for investors who had been bracing for the worst.
The S&P 500’s descent into bear market territory was the fastest in history, a reflection of how quickly and devastatingly the coronavirus had spread.
But the pandemic—the worst in more than 100 years—brought about powerful policy responses from fiscal and monetary authorities that, along with an easing of the health crisis, has infused investors with confidence, and given them hope that the economy could be on the mend sooner rather than later.
S&P 500 Recovers More Than Half Its Losses …
Trillions of dollars of relief and liquidity have been offered by governments around the world. In the U.S., the $2 trillion CARES Act has given individuals and businesses a lifeline to offset the temporary shuttering of large swaths of the economy. At the same time, the Federal Reserve has unleashed trillions of dollars’ worth of liquidity and lending programs—support by the central bank that is unprecedented in size and scope.
To be sure, investors are not out of the woods. The S&P 500 is still 16% off its Feb. 19 all-time highs; the unemployment rolls are ballooning by the day; and there is still much uncertainty about how successful any restart of the economy will be. Nevertheless, investors are embracing this rebound, whether or not it is temporary.
Following are some of the ETFs that have made the most noteworthy moves since the bottom.
Small & Midcaps Rebound
Large cap ETFs like the SPDR S&P 500 ETF Trust (SPY) get the most attention, but small and midcap funds are also widely owned. Funds holding stocks of smaller companies fell more than the S&P 500 in February and March as investors reasoned those will have a harder time navigating the difficult economic environment.
But since the lows, those smaller stocks have managed to keep up with their larger counterparts. The iShares Russell 2000 ETF (IWM) and the iShares Core S&P Mid-Cap ETF (IJH) gained 22.9% and 28.6%, respectively, since March 23 through April 14, though they are still down more than 24% each from their Feb. 19 highs.
IWM & IJH Rebounding, But SPY Closer To Its Highs …
Energy The Biggest Winner & Loser
The Energy Select Sector SPDR Fund (XLE) is the best-performing sector fund since the market lows, with a 42.7% gain. Yet even with that rebound, the energy sector is the worst-performing sector of the year, down 42.6% on a year-to-date basis. That tells you how steep the decline in energy shares has been in 2020.
After energy, real estate and utilities are the top sectors since the market low, each up more than 35%. Both sectors benefit from the current ultra-low interest rate environment.
On the other hand, if you measure returns compared with the Feb. 19 stock market all-time highs, the top sectors become health care and consumer staples, both seen as relatively insulated from the economic downturn. The Health Care Select Sector SPDR Fund (XLV) and the Consumer Staples Select Sector SPDR Fund (XLP) are down only a little more than 6% from their record highs.
Fed Ignites Bond ETFs
As impressive as the recent rebound in stocks has been, believe it or not, some bond ETFs have managed to outpace equities during this torrid rally. Thanks to pledges by the Federal Reserve to purchase everything from investment-grade corporate bonds to junk bonds, ETFs tied to those areas have rocketed higher.
The posterchild for the bond rally is the iShares iBoxx USD Investment Grade Corporate Bond ETF (LQD). This is one of the ETFs that the Fed is likely targeting for its investment-grade corporate bond ETF purchases. Since bottoming out on March 19—two sessions before the Fed announced its intention to buy corporate bond ETFs—the fund has surged 23.7%.
LQD Recovers Nearly Everything …
Not to be outdone, the Vanguard Long-Term Corporate Bond ETF (VCLT), which tracks longer-dated corporate bonds, rallied 30.7% in that same period.
More recently, the Fed announced that it would even consider dipping its toes into the high yield bond market, both through individual “fallen angel” bonds and broad junk bond ETFs.
Since its March 23 low, the iShares iBoxx USD High Yield Corporate Bond ETF (HYG) gained 18.8%, lagging behind its investment-grade counterparts.
7-Year Highs In Gold
Bonds aren’t the only asset benefiting from the Fed’s powerful actions. Gold has also gotten a boost from rock bottom rates. Prices for the yellow metal topped $1,725/oz for the first time in seven years this week, pushing the SPDR Gold Trust (GLD) to a gain of more than 11% since March 23 and nearly 14% on a year-to-date basis.
Gold Tops $1,725/oz
On the flip side, the Cboe Volatility Index (VIX) has headed the other way. After closing at a record-high 82.7 on March 16, the VIX has dropped by more than half to less than 38. The iPath Series B S&P 500 VIX Short Term Futures ETN (VXX) is down 37% in that period.
Then there is oil. Even though energy stocks have rebounded, the underlying commodity has been unable to get any traction. WTI crude oil prices remain moribund around the $20/barrel level, close to 18-year lows, even as OPEC, Russia and others banded together this week to reduce output by 9.7 million barrels per day, a record cut in production.
The United States Oil Fund LP (USO) is down about 4.5% since March 23, significantly underperforming energy equity ETFs.
Other Notable Movers
Other notable movers since March 23 include the Vanguard Information Technology ETF (VGT), up 26.4% in the period; the US Global Jets ETF (JETS), up 19.3%; the Vanguard FTSE Emerging Markets ETF (VWO), up 17%; the iShares JP Morgan USD Emerging Markets Bond ETF (EMB), up 12%; and the iShares 20+ Year Treasury Bond ETF (TLT), down 1.2%.
Email Sumit Roy at [email protected] or follow him on Twitter sumitroy2