Will the ASX 200 follow the S&P 500 to double its March 2020 lows?

The Aussie market often follows US markets higher or lower.

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After a strong run of consecutive gains last week, the S&P/ASX 200 Index (ASX: XJO) is in the red today, down 0.47% in afternoon trading.

Barring a late-day break higher, today will mark 4 days in a row of losses for the ASX 200 this week.

But that’s not necessarily anything to be concerned about. These kinds of retraces are part and parcel of investing in share markets.

We’ve seen the same thing happening on the US exchanges this week. And the Aussie market often follows where US markets lead.

ASX 200 slips from record closing high

After hitting record highs on Monday, the S&P 500 (INDEXSP: .INX) has given back some gains over the past 2 trading days, down 1.8%.

The ASX 200 hit its own all time closing high on Friday. It’s currently down 2.2% from that peak.

But remember, year-to-date the ASX 200 remains up just shy of 12%.

Over the past 12 months, it’s up 21%.

And since the post pandemic low on 20 March 2020, the index is up an eyewatering 55%.

That’s not just 1 company were talking about. It’s the average gain of the 200 largest listed companies in Australia.

Remarkable as that 55% gain is, however, it falls well shy of the 100% gain posted by the S&P 500.

Stock market records are meant to be broken

Commenting on the meteoric rise of the S&P 500 since 23 March 2020, multi-asset investment platform eToro’s global markets strategist Ben Laidler said, “This has been the fastest start to a bull market of the last century, and we see room for more.”

Materials, financials and technology shares led the broad rebound on US exchanges, much as they did on the ASX 200. Laidler says this rapid rebound was “driven by unprecedented fiscal and monetary response to the unique virus crisis”.

Defensive shares “such as staples, healthcare and real estate” broadly lagged behind.

Looking at the top gainers, Biotech company Moderna Inc (NASDAQ: MRNA) is up some 1,600% since the post pandemic lows, with Caesars Entertainment Inc (NASDAQ: CZR) soaring 864% and Tesla Inc (NASDAQ: TSLA) up 706%.

In case you’re wondering, Pilbara Minerals Ltd (ASX: PLS) led the charge higher on the ASX 200, up 1,333% since 20 March 2020.

But, in the US markets, it was shares like Moderna, and a host of others, that helped drive the S&P 500 to 49 new all-time highs this year. And, as Laidler points out, this puts it on “pace to challenge the longstanding 1995 record of 77” all-time highs.

This is another indicator of how unusually strong performance this year has been already. This is not inevitable. The S&P 500 did not see a new high in 24 years from 1930-1954 and only 9 new highs from 2001-2012.

Despite the near record pace of the current bull run, e-Toro remains optimistic shares could have much further to go. According to Laidler:

We see further broad gains ahead as stronger earnings expectations continue to offset the risk of the Delta variant, Fed tapering, and lower valuations. We think 2022 earnings growth ends up double the 9% consensus, as leverage to reopening economies is under-estimated.

This is also an insurance policy to valuations falling from current high 21x P/E valuations as the Fed tightens policy. We expect more volatility ahead, with the VIX low and a pullback statistically overdue. But see markets well supported as they were to the 2013 Fed taper tantrum and the recent bond yield spike seen in Q1.

Can the ASX 200 follow suit and double its post pandemic lows?

On 20 March 2020, the ASX 200 closed at 4,816 points. At time of writing it’s at 7,466 points. That means it needs to gain another 2,166 points, or some 29%, to achieve the doubling that the S&P 500 has scored.

As with the S&P 500, whether or not it reaches that milestone in the months ahead will greatly depend on strong earnings results offsetting resurgent concerns about the Delta variant derailing the economic recovery.

You can follow along with the FY21 earnings results of the leading ASX 200 companies right here.

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The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Tesla. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Moderna Inc. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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