Stock Market Rebounding or a Bear Market Rally?

Bear Market Rally

Over the past few weeks, investors have been pleased to see stock prices rise. Is this a real rebound, or simply a bear market rally? Have we turned the corner on the stock market slide? What factors will investors and analysts watch to determine the future direction of the markets in 2016? geralt / Pixabay

This week, the 2016 stock market correction was officially over.  All three of the major indices had rebounded to the point that none of them were in correction territory.  A correction is defined as being 10 percent or more below a recent high.  However, is this a true change in direction or just a temporary bear market rally?  See what the numbers and the analysts seen to indicate.

What did the numbers show when the stock market closed on Friday, March 4, 2016?

Dow Jones Industrial Averages:

End of 2015:  17,425.03

March 4, 2016: 17,006.77  (-418.26  or -2.4 percent change this year)

52 Week High:  18,351.40  (-1,344.63 which is -7.33 percent below 2015 high)

S & P 500:

End of 2015:   2,043.94

March 4, 2016:  1,999.99  (-43.95 or -2.15 percent change this year)

52 Week High:  2,134.72  (-134.73 which is -6.31 percent below its 2015 high)

NASDAQ:

End of 2015:  5,007.41

March 4:  4,717.02  ( -290.39 or -5.80 percent change this year)

52 Week High:  5,231.94  (-514.92 which is -9.84 percent below its 2015 high)

As investors can see, while all of the indices remain out of correction territory, the Nasdaq is still close enough that a small slide could pull it back into a correction.  What do the experts think will happen during the remainder of the year?  Is this a true rebound in the stock market or a temporary bear market rally?

What Are Analysts Predicting for the Remainder of the Year?

The Federal Reserve believes that the economy is strong and can withstand more interest rate hikes later in the year.  They are convinced the markets will continue to rise.

Bank of America released a report in February expressing their belief that there is a 25 percent chance that the U.S. could slip into another recession.

The Associated Press published an article on March 4, 2016 stating that the strong U.S. job growth in February is dispelling recession fears.  They are reporting investor optimism.

Bloomberg reported that this has been the best U.S. stock rally since 2014, and it is fueled by optimism about the economy.

On the other hand, when analysts study individual stocks rather than the overall indices, USA Today reported that 40 percent of stocks are still in a bear market … which means their current prices are 10 percent or more below their most recent high.  This could indicate that we are still experiencing a bear market rally, not a full rebound.

In summary, analysts remain divided over what they foresee for the remaining year.

Below is a list of the best and worst asset classes so far in 2016:

What Issues are Investors and Economists Watching?

  • Investors are still carefully watching the price of crude oil, since the markets have tracked closely with the price of oil this year. It it drops below $30 a barrel once again, the stock market is likely to fall, as well, especially the energy sector.
  • Related to the price of oil, OPEC has signaled that they are trying to organize a meeting of both OPEC and non-OPEC oil producing countries to discuss a production freeze.  They believe the meeting could be held in the first half of April, although nothing definite has been set.  Some countries, such as Venezuela, have been requesting such a meeting for several weeks.  If production is frozen, it could help stabilize the price of oil.  Several members of OPEC have made it clear, however, that it is very unlikely that production will be cut … just frozen.
  • The Federal Reserve has not indicated what they plan to do with interest rates in the coming year.  However, Fed chairwoman Janet Yellen has stated that she remains hopeful that we will see 2 percent inflation later this year, which is their goal.  If that happens, it is likely there will be more interest rate hikes. We are not at the level, yet.
  • New York Federal Reserve President William Dudley has suggested that the Fed is optimistic that the stock market will turn around in the second half of the year.   This is based on strong auto sales in February, improvement in employment data, and acceleration in consumer spending. Investors will continue to watch for signs that this is true and that the current increase in equity prices is not simply a bear market rally.
  • Another area that will affect the stock market is job creation and the unemployment rate.  On March 4, the government reported that 242,000 non-farm jobs were added to the economy and the unemployment rate remained steady at 4.9 percent.  This news prompted President Obama to say the economy is “pretty darn great” despite recent political rhetoric.

This chart shows that the rate of advancing versus declining stocks is at the highest level since 2009.

Significant Economic Reports in March

  • March 15 – Producer Price Index for Feb. 2016
  • March 16 – Consumer Price Index for Feb. 2016
  • March 17 – Job Openings and Labor Turnover for Jan. 2016
  • March 22 – Employment Situation of Veterans Annual Report for 2015

Significant Economic Reports in April

  • April 1 – Employment Situation for March 2016
  • April 5 – Job Openings and Labor Turnover Survey for Feb. 2016
  • April 8 – America’s Young Adults at 29: Labor Market Activity, Education, and Household Composition
  • April 14 – Consumer Price Index for March 2016
  • April 22 – Employment Characteristics of Families Annual 2015 report
  • April 28 – College Enrollment and Work Activity of High School Graduates Annual 2015 report
  • April 29 – Employment Cost Index First Quarter 2016

Resources:

http://www.bls.gov/schedule/news_release/201512_sched.htm

http://www.breakingnews.com/ (March 2016)

Charts and statistics from: https://twitter.com/StockTwits and CNNMoney


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