Stocks have rebounded strongly lately but we often see snapback rallies in bear markets. Is this a bear trap, a sucker’s rally that will engender hope before turning lower?
Bears often point to history in this regard, noting the innumerable bear market rallies during the global financial crisis and the – dotcom bust.
This is true, but it’s equally true that many rebounds keep on going. The S&P hit technically overbought levels last week, having ascended per cent in a fortnight. However, LPL Research’s Ryan Detrick notes similar periods of strength in November , April , October , July and March , all of which turned out to be good times to be buying stocks. Similar data is cited by Schwab’s Liz Ann Sonders.
Still, it generally pays investors to suspend their doubts at times like this. According to MarketWatch data, the S&P has enjoyed a median gain of . per cent a year after exiting a correction, rising per cent of the time.
Will this time be different? Maybe. Rising rates, inflation, war and ongoing geopolitical uncertainty – there’s certainly no shortage of reasons to be concerned.
Still, investors shouldn’t assume the recent bounce is a sucker’s rally. More often than not, optimism pays better than pessimism.
