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The Long-Term View: US Stock Market

The coronavirus pandemic crisis created the quickest 30% drop in the history of the United States stock market. Gripped by fear, many voices called for the market to shut down – just like the economies which were in lockdown mode around the world.

In times of crisis, it is good to look at past events and how the stock market reacted. Judging by the chart above, the coronavirus decline is just a bump in the road if we consider the long-term perspective.

A Rising Market in a Decade Full of Crises

After Lehman’s collapse in 2009, the financial industry changed completely. New regulations out of the United States were meant to provide further safety to investors.

Despite having to deal with a crisis of some sort throughout history, the United States stock market eventually always showed its ability to further growth. The 2012 EU debt crisis was not enough to deter long-term momentum growth. Nor the emerging markets slowdown commodity bust, not to mention the US-China trade war that held the headlines during most of Trump’s administration.

However, despite the staggering resilience of the US stock market, none of the crises seen above were caused by a global pandemic. Economies kept functioning, and life was not disrupted the way it is today. Hence, the coronavirus crisis may have further implications on the market’s total return moving forward.

The bounce from the lows surprised many investors. The ones fearing to buy when prices were free-falling, now feel like missing the dip. FOMO drives the overall market higher, but not only that.

Stock market indexes componence changes through time. What is interesting is that nowadays, the S&P500 is the most concentrated it has ever been in more than a generation.

AT&T dominated the 60s, IBM most of the 70s and 80s, and Exxon during the 2008 financial crisis. A closer look at today’s components reveals that Apple and Microsoft dominated the index for the past decade.

As the coronavirus crisis forces the world to turn even more to cloud infrastructure, subscription-based entertainment, and video communication solutions, the two companies (and many in the same industry) represent the market as we know it today. In other words, the surprising resilience of the stock market in front of the largest shock in our lifetime should not be so surprising after all. If these companies did well before the health crisis, they are poised to strive moving forward.