Don’t Feel Too Relieved by the Bounce Back in Stocks

Is this a bear market or a bull market? It’s a strange question to ask just weeks after a 34% decline in the S&P 500, but here we are. The surge in the index from its low on March 23 exceeded the 20% threshold many consider to define the start of a new bull market, even if the record high on Feb. 19 remains a distant memory. Like anyone stuck in their home for the last few weeks lamenting that they aren’t sure exactly what day it is, the Covid-19 virus is causing a disorienting effect on investors. No one seems 100% sure what type of market environment this is.

Bear markets are famous for including stunning rallies that turn out to be short-lived. The financial crisis had a few such upswings, including a 24% surge from late November 2008 into early January 2009, before the final low was finally set in March. Underpinning the current confusion is an unprecedented series of interventions by the Federal Reserve, combined with a still-fuzzy picture of just how long the virus will wreak havoc on the economy and corporate profits. The picture may begin to clear as companies begin to report their results for the first quarter and offer guidance about what to expect for the rest of the year.