08 Aug COTW: Bear Market Rally
- U.S. stocks, as proxied by the S&P 500, have rebounded from their June lows, rallying more than 13% in 33 days. While this rally has provided relief to the market, investor should be cautious in calling the end to the current bear market based on this rebound, as bear markets can experience multiple unsuccessful rallies before markets bottom.
- The catalyst for the current rally was extremely negative sentiment suggesting market positioning had become tilted away from longer-duration risky assets and towards a general risk-off posture and inflation hedges. A combination of “less negative” economic data, better than expected earnings results and the perceived dovish tone from the July FOMC meeting helped lift markets from the June lows.
- Although the current rally may feel significant in magnitude and pace, and while we will only know for sure if this is a bear market rally after the fact, historic bear market rallies have averaged in the mid-teens %, making the current rally far from extraordinary.
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