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By yesterday's close, stocks had gained 21% in the last three days, making that the shortest bear market on record.
The Wall Street Journal coronated the end of the three-day rally by declaring that "a new bull market has begun."
Now that we're at the start of a new bull market, it's time to dive into stocks again, right?
Not so fast.
Warning: Trillions of dollars of Fed "stimulus" can't stop COVID-19 from devastating markets and economies - but it can sure make things worse. Find out what's next in this just-released report...
"Head fake" rallies are a common feature of bull markets. This one's no different. All signs point to markets and the economy getting even worse from here...
Don't Be Lured by the Bull Market Trap
The Dow gained nearly 4,000 points between Monday's close and Thursday's close. That 21% gain brought stocks out of bear market territory, at least temporarily.
That could trick investors into thinking the $2 trillion stimulus bill Congress is about to pass will do enough to revive stocks.
But quick 20% gains are a common feature of extended bear markets.
The early-2000s bear saw four rallies of 20% or more even as stocks lost 40% between December 1999 and September 2002.
We saw the same thing during the 2008 crash. Stocks fell by 50% between October 2007 and February 2009, but stocks rallied 27% higher between March and May 2008. Investors who jumped feet first into that bull market got burned.
While the March 13 crash was worse than "Black Tuesday" on Oct. 28, 1929, Wednesday's 11% rally was the biggest since 1933. It shouldn't be a comforting sign to see our current volatility compared so easily with the 1929 crash and bear market.
Stocks are already down on the day, but if the rally reemerges next week, Money Morning Capital Wave Strategist Shah Gilani says to "enjoy it while it lasts."
The worst is yet to come...
Why We Haven't Hit Market Bottom Yet
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There are two reasons to expect markets to drop even more. And we won't see a real bull market emerge until we see positive signs on these two fronts.
First, the coronavirus is still spreading aggressively in the United States.
Coronavirus cases in the United States are doubling nearly every two days. Part of that is a function of more testing being available, but it's a worrying sign nonetheless. Deaths from COVID-19 are also doubling roughly every three days with no sign of slowing down.
Epidemiologists are predicting the worst spread of the virus is still on its way.
No longer confined to New York City, cases are across the country, including in New Orleans, Dallas, Atlanta, Detroit, and Chicago.
There simply won't be cause for optimism until we see these growth trends slow or until we get credible news of a vaccine or effective treatment. That means any market really will be short-lived because the bad news will keep rolling in.
Second, the economy is in recession.
It's not official yet. There need to be two consecutive quarters of negative GDP growth for it to meet the formal definition of a recession, but with unemployment claims surging to 3.28 million yesterday, does anyone think the economy is growing?
We can expect the Q1 GDP report on April 29 and the Q2 GDP report on June 30. It's almost a certainty that both will show negative GDP growth. Q4 GDP grew 2.1%, so that's our baseline for Q1. With the coronavirus crushing stocks since late February and the economy grinding to a halt by mid-March, its almost a certainty we'll see a decline.
And unless there is an unprecedented snapback in early April, we'll see a negative report on June 30 too.
As Shah told us last week, "Don't believe anyone who tries to tell you that 'demand destruction' resulting from the impact of the novel coronavirus across U.S. and world economies isn't going to result in a global recession. They don't know the facts."
Imagine what stocks are going to do once a recession is official on June 30. We're not even close to the end of this.
Again, positive news on either or both of these fronts could fuel a new, sustainable rally. But a short-term pop in stocks while coronavirus deaths are doubling and the economy is in recession just isn't going to last.
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