Markets roared back last week from the lows of the current bear market. Is the surge just further volatility or a sign of the end of the route?
Stimulus
The S&P 500 climbed 10.26% in one week–the single largest weekly gain since 1933! The market rebound came about as a result of monetary stimulus and fiscal stimulus. This will flood the economy in coming weeks. Quantitative Easing IV (monetary) will purchase an unlimited amount of bonds. The move shows an unwavering support of the economy by the Federal Reserve Bank (FRB). The more relieving stimulus was the fiscal stimulus discussed all week and passed on Friday. Fiscal stimulus will provide needed relief during the downturn, while FRB stimulus will be what carries us out.
Volatility
Bear markets are typically rife with volatility. The VIX index, tracked on the Chicago Board of Options Exchange, measures the forward projection of volatility. It reached a peak level of 82.69 and as of this writing, it sits at 57.08. On average, during good times it will run below 21. What does this all mean? The number represents volatility over the next 30 days. When divided, it reflects a volatility of 3.5% per day average. This volatility means that we should not expect calm to quickly overcome markets.
Conclusion
Bear markets tend to be volatile and no cure/vaccine is readily available for the coronavirus. This and the fact the illness has yet to peak means potential for markets to retest lows still exist. It can not be assumed that the worst has passed as of yet. However, when the peak of the pandemic passes, existing stimulus is reason to believe the rebound could come quickly!
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