Stock Market Just Closed its Best Week Since 1974 – But Don’t Celebrate Yet

The stock market climbed Thursday, continuing gains from Wednesday after Senator Bernie Sanders abandoned the presidential race. Optimism is in the air after the Federal Reserve announced more than $2.3 trillion in aid to businesses and governments. The central bank will also buy good investment-grade and junk bonds.

Investors also seem confident that the coronavirus crisis will soon be over, as new cases are slowing down both in the U.S. and globally. Treasury Secretary Steven Mnuchin told CNBC on Thursday that the U.S. economy could open for business in May. The Labor Department reported Thursday that weekly jobless claims have soared for the third consecutive week, reaching 6.6 million for the period ended April 4.

Nearly 17 million unemployment insurance claims in three weeks are unprecedented, as the coronavirus epidemic hit the U.S. economy badly. But these worrisome numbers weren’t enough to discourage investors, as they continue to buy stocks. Besides, consumer sentiment fell to a nine-year low in early April, according to a preliminary reading of the University of Michigan consumer surveys released on Thursday.

The S&P 500 finished the shortened week with a 12% gain. That’s the index’s best weekly performance since 1974 when it rallied 14% in a single week. The Dow Jones climbed more than 12% for one of its biggest weekly gains ever. While appearing positive at the surface, such a strong rally might not be a good sign. That’s because in 1974 – the last time the S&P 500 rallied so strongly – the index fell 30% for the entire year.

That bear market was so severe that it lasted from January 1973 to December 1974. In the United States, unemployment soared to 9% in mid-1975 – the highest rate since the Great Depression. Sharp rallies often occur during bear markets.

The S&P 500 is only down 14% year-to-date, which means stocks might just be in a bear-market rally. The stock market might not have hit bottom, as there is still uncertainty regarding how the coronavirus will impact the economy in the coming weeks and months.

Stock Market Just Closed its Best Week Since 1974 – But Don’t Celebrate Yet, CCN, Apr 10