March Stock Rally Doesn’t Negate The Risk of A Bear Market

The comments below are an edited and abridged synopsis of an article by Lance Roberts

If we experience a March stock market rally, does that mean the risk of a bear market is over? So far, 2022 has been challenging for those who were lulled into complacency since the March 2020 lows. The deluge of liquidity flooded financial markets, providing an effortless trading environment for inexperienced investors.

March Stock Rally Doesn’t Negate The Risk of A Bear Market - BullionBuzz - Nick's-Top-Six
A businessman covers his eyes as he can’t watch a descending stock chart and an ominous shadow of a bear that is cast on the wall above him.

Up for discussion: March stock markets tend to be positive; hedging for a crash that didn’t come; the risk of a bear market remains; and every bear market is the same.

“The first few rate hikes typically do not disrupt markets… because it takes roughly 9 months for changes to monetary policy to filter into the economy.”

“The mistake that investors make is assuming that since the first couple of rate hikes didn’t crash the market, this time is different.”

“As noted, with the markets negatively positioned, the markets may seem to ignore initial rate hikes. However, they likely won’t ignore tighter policy for very long.”

“Every bear market in history has an initial decline, a reflexive rally, then a protracted decline which reverts market excesses. Investors never know where they are in the process until the rally’s completion from the initial fall.”

“The deviation of the market due to Fed stimulus was so extended above long-term trends in March 2020 the depth of that correction was not surprising.”

“Given that the current deviation dwarfs all others, the following bear market will likely be equally deep.”

Warning signs suggest the risks of having excessive equity exposure to the market outweigh the potential for reward.

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