Here’s what happens after huge market rallies like Tuesday’s stunner - MarketWatch

The stock market rallied its way into the history books on Tuesday, with the Dow Jones Industrial Average exploding for its biggest point gain ever and third biggest percentage advance on hopes that lawmakers would soon hammer out a giant stimulus package.

Read:The stock market’s historic bounce may signal ‘near-term bottom,’ but a retest of the low like 1987 and 2008 is still a possibility

What’s next? Probably good things — eventually — if this chart from Ryan Detrick is any indication:

As you can see, 5-year returns following double-digit gains have been stellar, aside from the brutal stretch after the 12% rally in 1929. Interestingly, most days in the chart came during the Great Depression, illustrating how some of the most bullish trading sessions take place in bear markets.

What the chart also tells us is that it could remain extremely volatile, and likely ugly, for a while. Just look at the 6-month returns, which average a drop of almost 8%. The 3-month isn’t much better.

Of course, the coronavirus pandemic feels unique, but on historical trends alone, odds are that, in the years to come, we’ll look back at lows in recent weeks as having been a great time to buy.

Read: Why ‘no one will regret buying stocks’ at the lowest prices the market has seen in years, ‘assuming society doesn’t collapse’ meanwhile

As it stands, the buyers still have an appetite. The Dow Jones Industrial Average DJIA, +5.69% rode a 900-point gain to push above the 21,000 level early Wednesday, bolstered by word of a $2 trillion stimulus measure aimed at keeping Americans whole during the economic shutdown. The S&P 500 SPX, +4.06% and tech-heavy Nasdaq Composite COMP, +2.23% were also up big.

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http://www.marketwatch.com/story/heres-what-happens-after-huge-market-rallies-like-tuesdays-stunner-2020-03-25

2020-03-25 17:39:17Z
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