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May 19, 2021

Recovery or bear market rally?

By Gordon Powers, Sympatico / MSN Finance

While Canada took the day off, U.S. stocks rallied yesterday. The S&P 500 jumped 3% after positive news about the U.S. housing market, including an upbeat profit forecast from home-improvement giant Lowes.

Great news ... but investors are still divided as to whether the recent rise in global stock markets is the beginning of a sustained bull market, or just a bear market rally – meaning that these gains could be short-lived.

Here’s what we do know though. Once a bear market cycle ends, a large portion of the returns in the next bull market occur very early in the new cycle. In other words, it’s all too easy to miss out if you’ve been on the sidelines.

Fidelity Investments recently reviewed total monthly returns of the S&P 500 Index from 1930 to early 2009. The 14 historical bull markets analyzed are defined as periods with an increase of 20% or more in stock prices.

What did they find? Stock markets not only recover early coming out of a recession, they recover fast. In fact, a large portion of the bull market returns historically occur in the first year following the bear market.

So, while bull markets last an average of three years and have lasted as long as a decade, the biggest bang for your buck tends to come in the first year of the rebound.

Are we there yet? Probably not, says Mark Hulbert. Despite yesterday’s pop, his research suggests that the recent rally, impressive as it otherwise is, will in the end prove to be just a bear market rally.

A market driven by nervous investors placing bets on the prospect of a recovery in China, an improved outlook for commodity prices and hints of a turnaround in the U.S. housing market are likely not enough to bring about a long bull run.

Not just yet, at least.



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Gordon PowersGordon Powers

A long-time fund company executive, Gordon Powers now heads up the Affinity Group, a financial services consulting firm. Gordon was a personal finance columnist for the Globe & Mail for many years, has taught retirement planning...

Jason BucklandJason Buckland

The modern-day MC Hammer of money, Jason can often be seen spending cash that isn’t his with the efficiency of a Wilt Chamberlain first date. After cutting his teeth as a reporter for the Toronto Sun, he joined the MSN Money team with...