July 8, 2020
Red Herring

The most confusing aspect of the coronavirus crisis, in my opinion, is its acuteness compared the stock market’s reaction to it.

At the end of February, there were 5.8 million unemployed Americans. That had grown to 23.1 million by the end of April. This number has since retreated, but it could get worse before getting better.
The beginning of the Great Depression may have been this abrupt, but we don’t know because we didn’t collect these statistics back then. It’s hardly an exaggeration, then, to call the unfolding crisis unprecedented.

You would never know this by looking at the stock market.

As of Monday, the S&P 500 was down just 0.7% for the year — par for the course to a seasoned investor.

What should we make of this?

The easy answer is that an enormous amount of money has poured into the economy through fiscal and monetary stimulus.

The $1,200 checks sent to taxpayers over the past two months, combined with the supplemental unemployment benefits that expire at the end of this month, have been so salutary that many workers in low-paying jobs have purportedly found unemployment to be more lucrative than employment.

Additionally, the capital markets are awash with liquidity. Since February, the Federal Reserve has purchased $3 trillion worth of assets, primarily Treasuries. That’s nearly three times as much as it spent in the early stages of the financial crisis of 2008-09.
These purchases have driven short-term interest rates back down to nearly 0%, increasing the allure of stocks relative to bonds.

But not all stocks have benefited equally.

While the S&P 500 was down overall as of Monday by only 0.7% for the year, the median stock on the index was down 11%. This disparity is caused by the index’s weighting.

The 10 biggest companies on the S&P 500 (by market cap) account for nearly a quarter of its performance. These stocks are up around 10% since the start of the year. Meanwhile, the 50 smallest companies are down by an average of approximately 39%.

The moral of the story is that the stock market is a red herring — it’s a distraction that makes it seem like things are better than they are.

John J. Maxfield / editor in chief of Bank Director
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Acquiring a partner with similar values and maintaining its strategic focus helped Sandy Spring Bancorp overcome the challenges of integrating during a pandemic.

“In a strange way, we’re probably in a better place today than we would have been, absent a pandemic, from the standpoint of being together … Even though we’re not physically together.” — Daniel Schrider, Sandy Spring Bancorp president and CEO 

Kiah Lau Haslett / managing editor for Bank Director