There have been five major bear markets in the S&P since the Depression, with each one
experiencing rallies along the way that turned out to be false dawns. Each of these rallies felt
real at the time, and there was a solid belief that the bad news that caused the initial crash was
now out of the way. Yet each of these bear-market rallies ultimately led to disappointment.

Now, of course, this time it may be different – with the Fed’s and the Treasury’s gigantic stimulus
measures – but we would offer our readers some historical context to help them assess the risks
for themselves. The top chart shows the average of 12 bear-market rallies over the last 5
major bear markets going back to 1929, vs today’s rally. We can see today’s rally is stretched
relative to the average (and larger than the one that followed the 1929 crash). Further, we are
right around the time when, on average, the rally has peaked. One concern in the US
currently is the intensity of the lockdown: a longer and tighter lockdown would be a negative for
US sentiment. While Italy is used as a time-line for when restrictions can be eased in the US, the
fall in US activity has been much less than in Italy (middle chart). Moreover, we can see that
the US infection curve is steeper than Italy’s was at the same point in their lockdown (last chart).

Source: Bloomberg, Macrobond and Variant Perception