The S&P 500 soared 9.5 per cent last Wednesday, one of the biggest gains in history.
That’s not a good thing.
Stocktake isn’t saying this because of Thursday’s action, when momentum shifted and stocks slid. It’s because the biggest, fastest gains often occur in bear markets and times of crisis – think of the 1930s, the dotcom bust, the 2008-2009 financial crisis and so on.
Of course, huge gains can occur near market bottoms, but it’s noteworthy that about two-thirds of the best days take place in down-trending markets.
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Big gains and big losses are normal in times of uncertainty. Snap-back rallies shouldn’t be mistaken for clear skies ahead.