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A look at the state of the stock market one year since its pre-Covid peak

 

For all the unprecedented events and unforeseen consequences of the past year, market conditions today rhyme rather closely with those of mid-February 2020, when stocks peaked right before the Covid crash.

 

In the six months leading to the Feb. 19, 2020, crest in the indexes, the S&P 500 had gained 15.8% to a series of new all-time highs. Today, the index is up 15.9% the past six months, and has been clicking to new records for most of that span.

Much of the talk around the market is similar, too: Worries that too much of the market is dominated by a few huge growth stocks (the top five S&P stocks were 20% of the index then and are 22% today) and that investor sentiment had perhaps grown too complacent.

 

Then, as now, the S&P was at a 20-year high in terms of valuation, the forward price/earnings ratio then just above 19 and now surpassing 22 – yet for those who choose to compare equity earnings yields to Treasury yields, the gap is pretty close: 3.7 percentage points then versus 3.3 now.

 

The spread on high-yield bonds has made an almost-perfect round trip in the past year, sitting right at extreme lows, which fits into a sense that generous credit markets are lubricating the economy and markets.

Reference: CNBC