Five years ago, U.S. stock prices marked their pre-pandemic peak on February 19, 2020. What followed has been an episodic five years for the stock market and the economy. In a six-week period, the S&P 500 Index fell about 35%, one of the sharpest declines within a short timeframe in U.S. stock market history. Stocks bottomed out on March 23, 2020, when robust monetary and fiscal stimulus proved positive for the market.
| Index Total Returns from 2/19/2020 – 3/23/2020 | |
|---|---|
| S&P 500 Index | -33.8% |
| S&P 500 Equal Weight Index | -39.0% |
Source: Bloomberg
A quick response by the Federal Reserve on monetary policy and by Washington on fiscal policy created unprecedented stimulus, which ultimately was a combined $10 trillion, or approximately 40% of U.S. GDP. In that five-year period that followed, U.S. stocks have fared very well, outperforming other major asset categories, as shown in the following table.
| Index Total Returns from 2/19/2020 – 2/19/2025 | |
|---|---|
| S&P 500 Index | 81.5% |
| S&P 500 Equal Weight Index | 54.1% |
| Bloomberg US Treasury Bill Index | 13.4% |
Source: Bloomberg
We would highlight the following lessons that investors should note from the last five years.
We Cannot Predict the Unexpected
The most likely risk to the markets is often the unexpected risk, as evidenced by the rapid decline in stocks in February and March of 2020.
Learn and Adapt from the Past
The Federal Reserve and Washington had a toolbox of stimulus options, which had been developed when combatting the 2008 financial crisis. This allowed the response time during the pandemic to be much quicker than the 2008 crisis.
Take Advantage when Opportunities Arise
It’s widely believed that the stimulus was then overdone in 2021 and 2022, long after the economy had bottomed out and was expanding. This ultimately proved to be inflationary, leading to higher interest rates.
However, both households and businesses were adept at taking advantage of lower interest rates in 2020 and 2021, locking in low mortgage rates and corporate borrowing costs. When inflation rates and interest rates later rose, they had less of an impact on the economy thanks to all the refinancing that had been done at lower rates.
Have Conviction in the Companies You Own
For investors, a focus on companies with cash flow and balance sheet strength was instrumental in protecting capital during the stock market’s initial decline five years ago. Those factors also proved critical during the ensuing recovery where the success in individual stock selection was driven largely by a company’s underlying fundamentals. For the patient investor, U.S. stocks have had a compound annualized return of 10-14% over the last five years, well outperforming cash equivalents.