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From 1 January 2020 to 31 December 2023, the S&P 500 index surged by 45.7%. During this period, the US economy underwent the challenges of the COVID-19 crisis, witnessing a sharp reduction in interest rates from 1.75% at the beginning of 2020 to 0.25% by the end of the year. Subsequently, rates increased to 5.25% by December 2023.
The rate cuts were conducted along with an unprecedented quantitative easing (QE) program, followed by a quantitative tightening (QT) program. In July 2022, inflation reached a 50-year record high of 9.1%. All these events were likely to impact the SPX performance substantially.
2020: reasons behind the S&P 500 decline and growth
In Q1 2020, the US economy grappled with the coronavirus pandemic, prompting Donald Trump to declare a health emergency and impose quarantine restrictions. Educational institutions closed, public events were banned, and citizens were advised to stay home. These restrictions consequently resulted in a sharp decline in business activity and a 34.9% drop in the S&P 500, tumbling from 3,391 on 20 February 2020 to 2,208 points on 23 March 2020
\To revive the economy, the US Senate passed a 2 trillion USD relief bill, and the Federal Reserve reduced the interest rate from 1.75% to 0.25% across two meetings in March. The regulator embarked on a quantitative easing program, which expanded its balance sheet from 4.1 trillion USD in January to 7.1 trillion USD in June 2020.These actions by the Federal Reserve likely instilled confidence in investors, and despite the index decline in February and March, positive returns of 16.0% were recorded at year-end.
