Stocks continued their rapid recovery in May, despite economic and social turmoil.
Since the March low, all major US indexes have surged over 35%: the first 15% by the end of March, another 10-14% in April, and an additional 5% in May.
Year-to-date through May 31, 2020, the S&P 500 was down just -5% and the Dow was down -10%, while the tech-heavy Nasdaq 100 was up 10%.
Foreign markets continued to lag those in the US, however. The MSCI EAFE was down -14% year-to-date through May and Emerging Markets -16%.
Can it last?
Bear market rallies do happen, even as stock markets establish new lows, but they are usually short lived and in the 10-15% range. Larger rallies have happened before, however. The S&P 500 gained 25% in late 2008 in response to the Federal Reserve’s quantitative easing and economic support before sinking to its March 2009 low.
On the other hand, there are signs of genuine momentum pushing the market higher. In recent weeks, the recovery has broadened from its initial focus on tech and health stocks. More than 90% of stocks in the S&P 500 are now above their 50-day moving average—a technical indicator that implies further gains.
And, although stock prices may appear unhinged from fundamentals like corporate profits, there is a lot of money on the sidelines waiting to be invested, according to JPMorgan Chase, and that could continue to fuel the rally.
Should you invest in stocks now?
When stock markets and the economy seem to be moving in opposite directions, investors aren’t sure what to do. Given the recent gains, some investors may be questioning the defensive moves they made when markets were falling. Not being invested during these initial rallies after bear markets can end up costing investors over the long term. Others may feel more comfortable being defensively positioned now, given the dire economic outlook. The right answer for you depends on your goals and risk needs.
If you have income, and you have a cash cushion of six to 12 months of your expenses to tide you over in an emergency, then you should still be investing in stocks to achieve your long-term goals. In five years time, you’ll be happy you did.
Deciding when and how to invest in times like this is part of our job as investment advisors. Some clients can afford to take less risk now, while others need to be more fully invested if they hope to meet their goals.
If you’re struggling to invest in this market, it may be time to consider working with an advisor. Click here and let’s set up a time to talk and see if it’s a good fit.