The Stock Market Is Bullish, But When Will The Bear Come Out Of Hibernation?
Market trends within the stock market tend to fluctuate in cycles. What comes up must come down is a universal law and an expression that is applicable not only to nature, but also to market forces in the stock market.
The common known cycles within the stock market are two: that of the bear and that of the bull. When the market is bullish, it is high. But as the universal law of nature implies, what is high cannot stay high forever, and so it follows that bullish markets eventually cycle back to bearish. The bearish cycles to bull eventually, and so the cycle continues. The movements are probably a bit more nuanced than this for a financial expert looking closely at the movements within the market, the bull/bear trend generally applies.
Current market trend
The current state of the stock market is great!
On the surface, this is great news for all investors. However, it is worthwhile to think about this trend a little more in depth. Why is it as great as it is right now? Since market trends are interdependent on what is happening around the world, negative news is often accompanied with downward movements in the market. Given the Coronavirus pandemic, the current news is not so great, so why is the market still doing so well?
Beginning at the end of February and into March of 2020, for example, there was a substantial dip in the market. Though the virus Coronavirus arrived in the US around January of 2020 (possibly a little before), the first news of the Coronavirus pandemic did not start circulating throughout all major news outlets until after the first week of March 2020. With the fear that the pandemic could have a deleterious impact on the world economy and everyday life, investors got incredibly nervous and began a slew of sales, which ultimately drove the market down. March 11, 2020 marked the end of what some investors claimed as the longest bull market in history, with a dip of about 6%.
However, the market quickly recovered. After the plunge in March of 2020, the market as measured by the S&P regained 15% by the end of 2020. Today, about a year later after that infamous downward dip, the stock market valuation remains high, which is, on the surface, great news for investors. The dip amidst the publicization of the Coronavirus pandemic did not last long, and it’s probably safe to conclude, much shorter than many other bear markets in history.
Prior to this downturn, the market has been going especially strong for two years in a steady, positive trend, since the 2008 economic crash. In 2019, for example, the stock market, as measured by S&P gained 28% and MSCI developed world index gained
Federal government intervention
Minus the market downturn in the advent of Coronavirus, the stock market has been bullish for about a decade. Some investors see this period as the longest bull market in history. But when will it all end?
The concerning thing about the stock market recovery after the plunge in March 2020 is that the recovery has been propped up by the federal government. While bullish markets usually occur in tandem with strong economic growth, the economy since the advent of Covid has been anything but good. So why is the stock market still so high?
The almost-instant stock market recovery after the March 2020 dip has been a result of the federal government pumping liquid assets into the market. In the wake of the Covid crisis, the federal government has attempted to pass various measures to help individuals, small and big businesses, and this included stipulations to help prop up the stock market by pumping liquid assets into it. So basically, since the Covid crisis, the federal reserve has been pumping liquidity into the financial system, just as it has in the wake of the 2008 economic crisis. In other words, it is because of the help of the federal government that stock valuation has remained high.
This is good news not only for the wealthy. It is also good news for the average, middle class American, who has their retirement savings invested in 401k plans whose growth over time is reliant on the stock market performing well. However, if the stock market is performing well not on its own but because of government intervention, the growth seems overly superficial. Will there be any consequences as a result?
There are concerns that federal debt, partly from spending such as this, will balloon out of control and leave the country in permanent economic hardship. So what will happen?
When will the market revert into the opposite direction?
Since the market has remained bullish for so long, the downturn is bound to come at any moment. This expectation may be the reason for why gold and cryptocurrency are becoming all the more popular-there is already panic setting in about a stock market crash.
The outcome of the Coronavirus epidemic in the remainder of 2021 will be key in how the stock market performs in the near future. If businesses and individuals continue to make an economic recovery, perhaps the market will remain on a strong upward trend.
If not, then the market will see a downturn unless the federal government once again steps in to the rescue.