Last week, the S&P 500 saw a huge peak, followed by a valley the very next day. And while there’s not a clear explanation for what’s causing the swings, there is speculation that the wild swings are a sign that this year’s bear market is approaching its bottom at last, contends an article in The Wall Street Journal.
While investor sentiment has once again turned negative, the big price declines has many wondering whether the time is right to buy. Bond investors, who have been hit hard this year, are starting to argue for buying again, positing that rising bond yields makes them a good value, even with the looming possibility of more interest rate hikes. This amalgamation of both negative sentiment and a determination to buy increases the chance that the market will start going up before the Fed makes it clear whether or not they are done raising rates, the article portends.
But looking back through the market’s history, intraday rallies like last week’s often did not indicate that the bear market had hit its bottom, and that in fact the bottom was still months away. Following the Lehman Brothers’ collapse in September 2008, bear market rallies came and went, and the low didn’t happen until March 2009. In fact, of all the one-day rallies since 1990, only two had staying power; all the others fizzled after a few months, at the most, before hitting a new low. However, those new lows were not that far below the low hit on the day of the rally.
While the big gains, generated in such a gloomy atmosphere, could indicate that the market is nearing its low, there is also a chance that the economy will continue to weaken. The impact of tightening monetary policies is lagged, and could land harder than expected, especially as Europe faces an energy crisis this winter, geopolitical tensions remain high, and China continues to stifle its economy with its strict Covid regulations. All of those bad things may already have been factored into stock prices, which have dropped significantly, which could be the reason why investors are once again eager to buy, instead of desperate to sell.