Bear Market Bounce

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Call them a bear market bounce. In a note to clients yesterday, I put in perspective that the Nasdaq's extraordinary jump of over 12% was the second best day on record. The chart above of the SP 500 index is a short-term view showing yesterday's near 10% incredible increase (blue vertical line) and all the red lines (down days) surrounding it. Including today. Already this morning the SP 500 is down over 4%, giving back much of yesterday's gain. It has been historically normal for the indexes to fall back in the day after and ensuing days after these super spike bear market bounces. Two main takeaways from these extreme moves are, one, they occur generally after measurably oversold conditions and a collapse in investor sentiment, and, two, they trigger the start of the market's bottoming process.

Look at tables below. First the Nasdaq, which only dates back to 1971. Then the Dow, America's oldest stock market index. The top 10 greatest gains came during the market's worst times: The Great Depression, Black Monday '87, The Dot Com Bust, The Great Financial Crisis (GFC 2007-09), and in recent history, the Covid-19 Pandemic. The country's and world's worst of times!

So, days in the stock market like yesterday are bear market bounces and often called "relief rallies". While those awesome moves higher feel fantastic, they historically don't signal an all clear end to more moves lower. Today's market action shows that. Volatility remains elevated and investor FUD (Fear Uncertainty & Doubt) are still high. Bear market bounces are a bullish part of the bear market's bottoming. The vintage Rolaids commercials asked, "How do you spell relief?" Wall Street's relief comes in the form of giant gains like yesterday. Some investors may be reaching for Rolaids while the bear market bottoming process plays out.

John J. Gardner, CFP®, CPM®
Blackhawk Wealth Advisors
3860 Blackhawk Rd, Ste. 160
Danville, Ca. 94506
888.985.PLAN (7526)

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