The incredible rally off the March 23 lows continues for equities, with the S&P 500 Index now up more than 32% in 40 trading days. As impressive as the rally has been, we do have some near-term concerns, as we discussed in Downside Risk Remains. Higher valuations, US-/China relations, weakening technicals, and the historically troublesome summer months all could play a part in potential weakness after the record run.
“In 40 trading days, the S&P 500 gained 32%, which is second only to the 40 days off the March 2009 lows,” explained LPL Financial Senior Market Strategist Ryan Detrick. “Looking back at history shows that after the initial surge off of bear lows, stocks tend to correct about 10%, which is something we could see this time around.”
As shown in the LPL Chart of the Day, the S&P 500 rallied nearly 21% in 30 days after all major bear markets. But once those initial rallies ended, there was a correction of more than 10% on average. Bottoms are a process, and as impressive as this run has been, we think the odds are quite high for some type of pullback or correction over the coming months. Thanks to our friends at Strategas Research Partners for the data points below.
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