Sunday August 25th, 2019 10:49PM

Back to the same record, but it's a different stock market

By The Associated Press
Related Articles
  Contact Editor

NEW YORK (AP) — Stock investors had to go on a harrowing round trip over the last seven months, but the market may be in a healthier place after it.

The S&P 500 index of big U.S. stocks is back to a record high, closing above 2,930 on Tuesday for the first time since Sept. 20. On the way, though, it took investors on a terrifying plunge of nearly 20%, amid worries that the economy would tip into recession. After hitting bottom in December, stocks took off on a nearly mirror-image rally .

Even though the S&P 500 is back at the same level, analysts say many of the market's vital signs look different today than in late September.

Worries about a possible recession have dimmed, in large part because of a change in stance by the Federal Reserve. That has many investors predicting more gains for the market this go-around, despite risks still hanging over stocks, such as the still simmering global trade war and slower growth for economies and corporate profits around the world.

Here's a look at some of the changes for the market, and one big similarity, between then and now:


This is the biggest difference by far, investors say.

Last autumn, the Federal Reserve was deep into its plan to gradually raise interest rates, after having kept them pinned at nearly zero for years. Higher rates would slow the economy, but it would also reduce the risk of higher inflation and the job market was in much better shape than in the aftermath of the Great Recession. When the S&P 500 set its record on Sept. 20, the Fed was a week away from raising its key short-term rate by a quarter of a percentage point for the seventh time in eight quarters.

But those and other moves by the Fed raised worries along Wall Street that the central bank was moving too fast and could push the economy into recession.

"I was feeling very cautious on the market last fall because you were seeing a lot of straws in the wind that the Fed was too tight," said Margie Patel, senior portfolio manager at Wells Fargo Asset Management. "Even though rates were low, you could see housing and autos looking weak, and in the stock market, every now and then, you'd see a sector of the stock market plunge for really no reason."

In December, the Fed raised rates again and said another two increases may come in 2019. But officials changed their outlook early this year, following the plunge in stock prices, and officials pledged to be patient in raising rates. Then, in March, the central bank said it may not raise rates at all in 2019.

The easier tone sent the yield on the 10-year Treasury's yield, which affects rates for mortgages and other loans, down to 2.57% from 3.07% in late September. That's a boost for the economy, as well as for stock prices.

"Recession, I think it's off the radar now," Patel said.


Companies are in the middle of telling investors how much profit they made during the first three months of 2019, and analysts have prepped for disappointment. Wall Street is forecasting a drop of more than 3% for S&P 500 companies, the first decline in nearly three years.

That's a concern for investors because stock prices tend to track profits over the long term. But analysts expect growth to return and accelerate as the year progresses. After hitting bottom in the first quarter, analysts expect S&P 500 profit growth to ramp back up to 8.5% in the fourth quarter thanks to stronger than expected revenues.

Economic data has been improving around the world, which is raising optimism.

When the S&P 500 set its record last fall, dueling import taxes by the United States and China threatened global growth, higher mortgage rates were hurting home sales and the initial October jobs report hinted at slower hiring.

Now, U.S.-China trade tensions have dialed down, even if underlying conflicts are unresolved. Mortgage rates have fallen, home sales have recovered somewhat and the labor market has been solid, on average.

The economy still appears on course for slower economic growth this year than the roughly 3% pace achieved in 2018, with economists outside of the Trump administration generally pegging the annual gain at closer to 2%. But investors see a much lower risk of recession in 2019.


Stock prices may be back to where they were in September, but they don't look quite as expensive by some measures of value.

One of the main ways that analysts measure the value of a stock is to measure its price against the company's earnings. In September, the S&P 500 was trading at 20.6 times its earnings per share over the prior 12 months. That was well above its average of 16.3 over the prior 15 years.

Today, the S&P 500 is still trading above its long-term average, but not by as much: It's closer to 18.7.


When interest rates are low for a long time, the concern is that it will inflate a bubble. Two decades ago, investors piled into dot-com stocks and pushed them to prices that markets now see as ludicrous. In the middle of the last decade, it was housing prices that soared too high, too fast.

So far, at least, investors are still hesitant to pile into stocks. This is actually a reason the market may be primed for more gains, some analysts say.

Investors have pulled more money out of U.S. stock funds in the last few months than they've put in, according to the Investment Company Institute. If those skeptical investors come back to stocks, it could provide a further lift.

Of course, many risks still remain for markets, and few analysts are predicting the S&P 500 to continue rising in a straight line, as it has for much of 2019. Negotiations on the U.S.-China trade war are still ongoing. Low interest rates have encouraged U.S. companies to gorge themselves on debt, and some ideas percolating in Washington, such as universal health care, could drag down corporate profits.

Still, many investors are feeling better about the market's health this go-around, most of all because the easier Fed has helped diminish threat of recession.

"This 2,900 is better than the 2,900 we had a few months ago," said Steve Chiavarone, equity strategist at Federated investors.


AP Economics Writer Josh Boak contributed to this report.

  • Associated Categories: Associated Press (AP), AP Business, AP Business - Economy, AP Business - Financial Markets, AP Business - Industries, AP Business - Financial Services, AP Business - Real Estate
© Copyright 2019
All rights reserved. This material may not be published, broadcast, rewritten, or redistributed without permission.
Police release father's 911 call reporting son missing
Police have released a recording of the 911 call a suburban Chicago man made when he discovered his 5-year-old son was missing
4:33PM ( 14 minutes ago )
Florida Senate passes bill expanding armed teachers program
The Florida Senate passed a bill that will expand a program that allows some trained teacher volunteers to carry guns in schools
4:32PM ( 16 minutes ago )
Back to the same record, but it's a different stock market
The stock market went on a harrowing round trip the last seven months, but it may be in a healthier place because of it, analysts say
4:19PM ( 28 minutes ago )
Associated Press (AP)
Malawi becomes 1st nation to immunize kids against malaria
Malawi becomes 1st nation to begin immunizing children against malaria; Kenya, Ghana next
3:52PM ( 55 minutes ago )
AP source: Chiefs get Clark from Seahawks for draft picks
AP source: The Chiefs are acquiring defensive end Frank Clark from the Seahawks for a first-round draft pick this year and a second-round pick in 2020
3:35PM ( 1 hour ago )
S&P 500 index on track for all-time high as earnings roll in
The S&P 500 index was on track for an all-time high Tuesday as big U.S. companies began turning in solid results for the first quarter, despite predictions for the worst quarter of earnings growth in years.
3:26PM ( 1 hour ago )
AP Business
US new-home sales climbed 4.5% in March
Sales of new US homes rose 4.5% in March; strongest pace since November 2017 as market recovers from last year's slump
11:34AM ( 5 hours ago )
US move to end Iran exemptions sending oil prices higher
Global oil prices are climbing in the wake of the U.S. move to impose sanctions on countries that buy Iranian oil
11:14AM ( 5 hours ago )
US stocks move broadly higher as earnings reports flow in
US stocks rise broadly as major companies issue a stream of solid earnings reports
10:29AM ( 6 hours ago )
AP Business - Economy
Oil prices spike further after US move on Iran buyers
Oil prices spiked Tuesday to their highest levels since October on supply fears, after the Trump administration said it would soon impose sanctions on all buyers of Iranian oil.
7:56AM ( 8 hours ago )
US stock indexes end mostly lower after listless trading day
Wall Street capped a day of mostly sideways trading Monday with a slight gain for the benchmark S&P 500 index, as a spike in crude oil prices sent energy companies broadly higher
4:55PM ( 23 hours ago )
As oil surges, US stocks drift sideways in another muted day
Major U.S. stock indexes are drifting sideways in afternoon trading as a rally in energy companies is mostly held in check by broader declines elsewhere in the market
3:18PM ( 1 day ago )
AP Business - Financial Markets
The Latest: Analysts: Iran sanctions bullish for oil prices
Energy analysts at Raymond James & Associates are warning that U.S. imposition of tougher Iranian oil sanctions is "unambiguously bullish" for the price of oil
10:11AM ( 6 hours ago )
The Latest: EU regrets US decision on Iran sanctions
The European Union is criticizing the U.S. decision to impose sanctions on countries that buy Iranian oil and warns that the move could damage an international effort to stop Iran developing nuclear weapons.
9:12AM ( 7 hours ago )
Quake in northern Philippines kills 11, leaves 24 missing
Rescuers found more bodies in the rubble of a supermarket that crashed down in a powerful earthquake that damaged buildings and an airport in the northern Philippines, raising the death toll to 11
12:56AM ( 15 hours ago )
AP Business - Industries
New indictment expands case against Nissan ex-chair Ghosn
Prosecutors indict Nissan ex-chairman Ghosn on fresh breach of trust charges, expanding the case further and prolonging his detention
6:05AM ( 1 day ago )
Media: Nissan ex-chair Ghosn indicted for breach of trust
Japanese media: Nissan ex-chairman Ghosn indicted on fresh breach of trust charges
12:48AM ( 1 day ago )
APNewsBreak: Ivanka Trump says she passed on World Bank job
APNewsBreak: White House senior adviser Ivanka Trump says her father asked her if she was interested in the job of World Bank chief but she passed on it
11:15PM ( 5 days ago )
AP Business - Financial Services
Home sales fall 4.9% in slow start to spring buying season
Sales of US existing homes down 4.9% in March to mark slow start to spring-home-buying season
11:25AM ( 1 day ago )
US home construction slips 0.3% in March
US home construction slides 0.3% in March, posing a potential challenge to homebuyers
9:00AM ( 4 days ago )
US mortgage rates increased this week with 30-year at 4.17%
US long-term mortgage rates increased this week, though they remain lower than a year ago in a positive sign for home sales
10:48AM ( 5 days ago )
AP Business - Real Estate
Police release father's 911 call reporting son missing
Police have released a recording of the 911 call a suburban Chicago man made when he discovered his 5-year-old son was missing
4:33PM ( 14 minutes ago )
Florida Senate passes bill expanding armed teachers program
The Florida Senate passed a bill that will expand a program that allows some trained teacher volunteers to carry guns in schools
4:32PM ( 16 minutes ago )
The Latest: Court conservatives seem OK with census question
The Supreme Court's conservative majority appears ready to uphold the Trump administration's plan to ask about citizenship on the 2020 census
4:10PM ( 37 minutes ago )
Markets Right Now: S&P 500, Nasdaq close at record highs
The S&P 500 is closing at a record high, surpassing its September peak and recouping all the ground it lost in a nosedive late last year.
4:09PM ( 39 minutes ago )
$768M Wisconsin Powerball winner 'pretty much felt lucky'
A 24-year-old Wisconsin man has stepped forward to claim a $768 million Powerball jackpot, the nation's third-largest lottery prize, saying he "pretty much felt lucky" the day he bought his tickets
4:07PM ( 40 minutes ago )