Are Stocks in the Late Stage of a Bull Market or an Early Recovery?

The major stock indices have experienced huge gains since the COVID-19-fueled sell-off sent stocks crashing in February and March 2020. With coronavirus vaccines rolling out and encouraging economic data rolling in, many see the recent stock market gains as signs of a new bull market.

But what if the stock market recovery is simply a continuation of the previous bull market? If that’s the case, the bull market might be coming to an end.

Are Investors Too Optimistic?

Stocks have been on an unprecedented run since bottoming in March 2020. The S&P 500 is up more than 90% since then, the tech-heavy Nasdaq has soared 111%, the Dow Jones Industrial Average has climbed 85%, and the TSX has rallied 73%. All four indices are trading at record levels.

There are a lot of analysts on Wall Street and Bay Street that believe this is the start of a new bull-market, but it could be the end of the longest bull-market on record, the one that began after the 2008-2009 Great Recession.

Keep in mind bull-markets tend to come to a crashing end when the economy contracts. That didn’t happen in early 2020. The stock market crashed because of the worst health crisis in 100 years. In fact, the U.S. economy was in great shape before it was cobbled by COVID-19.

If anything, the coronavirus simply interrupted the 10+ year bull market during the first quarter of 2020. Viewed from that perspective, we are certainly in the late stage of a bull market. Not the early stages of a stock market recovery.

History is not on the side of the bulls. Stocks doubling within a year is quickly followed by a bear market. Case in point, between June and September 1932, the S&P 500 doubled in value, but it then quickly experienced a 40% contraction.

And it normally takes a long time to erase those losses. The last seven times the S&P 500 doubled off a bear market bottom, it took roughly four years for stocks to reach new levels.

If you take a look at how stocks have done since the start of 2020, it certainly looks like the broader stock market is in a new uptrend. But if you go back over the last decade, it looks like the COVID-19 stock market crash was just a hiccup.

Not only that, but the recent stock market rally is not a result of strong financials. Instead, it’s because of easy monetary policies enacted by central banks from around the world, record low interest rates, and the easing of lockdown rules.

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Stocks have been on a tear since bottoming in March 2020. While many economists are saying this points to the start of a new bull market, others suggest the sell-off was just a hiccup and we are in the late stages of a bull market and that a bear market is coming. Should investors be nervous? No. The trading professionals at Learn-To-Trade.com can teach you how to make money when stocks are going up, down, sideways, or crashing.

Learn-To-Trade.com is Canada’s oldest and leading provider of stock market trading courses. Over the years, we’ve taught thousands of investors, of every skill level, how to trade more confidently and profit more consistently.

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To learn more about Learn-To-Trade.com’s stock market trading course, contact us at 416-510-5560 or by e-mail at info@learn-to-trade.com.