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Los Angeles - April 2020: Closed sign hangs in the formerly bustling Hard Rock Cafe in Hollywood. Many analysts have proposed that “the bottom” is not yet in and that recent gains might just be a large bear market rally with a deeper bottom coming later this year.

Lyn Alden

The S&P 500, which the C Fund tracks, has been relatively flat in recent weeks, after an initially sharp recovery in March and early April:

The Stock Market is in a Sideways Trend for Now

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Looking back over the past several years, the market has been stuck in a relatively flat but very volatile range for the past 2-3 years now:

With April behind us, we have some more official government figures for how the economy looks.

Over 20 million jobs were lost in April, which brings the current number of jobs down to the levels reached in the prior two recessions, even though population has increased over these two decades:

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Chart Source: St. Louis Fed

Initial jobless claims are reported weekly, and there have been over 30 million and growing, so we could very well see more job losses in May.

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Chart Source: St. Louis Fed

If there is good news, it is that the number of weekly initial jobless claims, although still extraordinarily high, is diminishing each week. There was a big burst of lost jobs during the initial weeks of the economic shutdown, and since then the economy has continued to shed jobs, albeit at a less extreme rate per week.

Back in 2009, the stock market (represented here by the Wilshire 5000 index, which is roughly equivalent to the C Fund and S Fund combined), bottomed at the same time as the peak in initial jobless claims:

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From that point in March 2009, job losses continued to accumulate, but at a slower and slower weekly rate, so the market became more forward-looking and optimistic about the eventual recovery.

So far, 2020 has played out the same way, with a major stock market bottom coinciding with the peak of initial jobless claims, and even as more job losses come in but at a slower rate, the market has become optimistic:

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The timing in this recession feels odd, because it normally takes a year or so to reach the peak in initial jobless claims as an economy deteriorates deeper into recession, but the whole beginning of this recession was compressed into a period of three weeks due to the pandemic and associated global quarantine.

What’s different between the two recessions, besides the compressed timeframe in 2020, is the magnitude. Compared to the 2008/2009 recession, more jobs were lost in 2020, and yet the stock market had a much smaller percent decline from top to bottom so far. This has led many analysts to propose that “the bottom” is not yet in and that this might just be a big bear market rally with a deeper bottom coming later this year.

Every recession is unique, with its own quirky aspects. Maintaining proper diversification and risk management for your unique situation tends to preserve and build capital over the long run.

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Lyn Alden is a financial writer and an engineer, and holds a bachelor’s in engineering and a master’s in engineering management, with a focus on financial modeling and resource management. She specializes in analyzing and presenting financial data. Her investment work can be found on LynAlden.com.

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