The Dow Jones Industrial Average on Monday rallied 272 points, or 2.5%, and followed with another 148-point, or 1.34%, gain on Tuesday. That's after last week's 738-point, or 6.4%, tumble. The Standard & Poor's 500 Index is up 3.4% this week after last week's 6.5% fall.
Money Morning Chief Investment Strategist Keith Fitz-Gerald knows why the short-term rally is happening - and how investors can best to take advantage of it.
"I can make a case for a short-term rally that may build through the end of the week or even longer, now that the markets have gotten their ya-ya's out via the vicious selling of recent days," Fitz-Gerald said.
According to Fitz-Gerald, there are three things that could fuel a brief stock market rally:
- We're coming up on the end of the quarter. Given the massive over-performance of bonds over the past 12 to 24 months, the bulk of the institutions are likely to rebalance their portfolios by buying equities -- probably dividends and energy.
- The end of the year is in sight, too. That speaks to a practice called "window dressing," which are changes to a portfolio that institutional managers make to spruce up their quarterly client statements, while bolstering their bonuses if possible.
- The markets are very oversold, technically speaking, and that lights a fire under Wall Street's feet with regard to the timing. The markets historically want to reward underperformers. That's why the fear of missing further gains could pull more money into the game short-term.