After an amazing recovery from the March 23, 2020 bottom, the S&P is within 1.7% break even for YTD. As the media has noted, the S&P has the best ever 50 day rally from the bottom. Interestingly, after seven other strong 50 day rallies, the market was up 100% of the time 6 and 12 months later, averaging 10.2% and 17.3% respectively. According to the chart in the article, 6 of the 7 coincided with the end of a bear market.
Yet the data doesn't give me confidence that the rally is sustainable. There are too many headwinds: small business failing due to lockdown, protest and riot curfews closing down businesses, and the possibility of a significant increase in COVID-19 cases as states reopen. The downside risk is much higher than the upside potential, in my opinion, despite the data on previous strong 50 day rallies.
Separately, I already thought that many stocks were overbought and very expensive before COVID-19. I read somewhere that about 10-20 stocks are responsible for 1/3 of the S&P recovery. Some stocks are even hitting new highs, even though considered expensive by fundamentals before COVID-19.
Nah, not sustainable, despite the data on 7 similar previous rallies.
I will keep selling into the rally and look for an opportunity to buy back at lower prices.
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This is not financial nor investment advice. Please consult a professional advisor.
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