The fastest crash in U.S. market history bottomed out a year ago today. And as dizzying as the 2020 bear market descent was at the time, the ensuing bull market has been almost as unthinkable, with dozens of stocks more than tripling over the past 52 weeks.
Between its pre-crash closing peak on Feb. 19 and its closing bottom on March 23, the S&P 500 lost 34%. Never before had stocks fallen so far so fast – not even during the Great Financial Crisis or the Great Depression.
There was, of course, no way to know at the time. But on March 23, the bear market ended almost as quickly as it started.
The S&P 500 is up a little more than 76% since then. The Dow Jones Industrial Average has likewise tacked on roughly 76% and recently topped 33,000 for the first time. The tech-heavy Nasdaq Composite, meanwhile, is up a whopping 95%, even after stumbling in the early months of 2021.
And as for the small-cap benchmark Russell 2000? Forget about it. Stocks with smaller market values are supposed to outperform in the early days of an economic expansion, but the Russell 2000’s gain of 124% over the past year is downright jaw dropping.
The best-performing sectors of the past year are about what one would expect from a market that is – as we are so often reminded – forward looking.
For example, the energy and materials sectors lead the S&P 500 with gains of more than 100% year-over-year. Investors are betting on a surge in demand for oil, and commodities such as iron ore, respectively, as the global economy recovers. The pro-cyclical industrial and financial sectors aren’t too far behind. Consumer discretionary, up about 87% since the March 2020 bottom, reflects expectations about earnings growth amid a general reopening of stores, restaurants, live sports and the like.
When it comes to individual stocks, however, we see both forward- and backward-looking factors at play. The best stocks since the bear market bottom have been driven either by attributes that let them thrive during the pandemic, or by expectations for how profits will accelerate as we return to normal.
Take Wayfair (W), the top-performing stock in the Russell 1000 over the past year. It benefited from being both an e-commerce company and a home furnishings retailer. Few businesses have prospered as much from the consequences of the stuck-at-home era than e-commerce or home improvement.
At the other end of the list you’ll find Six Flags (SIX), which is something of a speculative bet on the amusement park operator coming back from the brink. Other once-beaten-down recovery plays include mall-based or brick-and-mortar retailers such as Gap (GPS), Kohl’s (KSS) and L Brands (LB).
Then there’s MGM Resorts (MGM). The casino operator is a forward-looking reopening bet in the travel, hospitality and leisure industry. Peloton Interactive (PTON) and Moderna (MRNA), on the other hand, directly benefited from pandemic life while we were still in the thick of it.
Whether forward-looking recovery investments or more backward-looking beneficiaries of the pandemic economy, there is a high likelihood that the easy money has already been made with many of stocks on this list.
But it is instructive nonetheless.
The first lesson? Remember that market timing is a fool’s errand. No one could know for certain that March 23, 2020 marked the COVID crash low.
Secondly, it’s nigh impossible to pick winners from losers. That’s why a diversified portfolio is the best way to go for the vast majority of investors.