Since October last year, the historic rise in the US stock market has shown little sign of stopping - the S&P 500 index has risen for 16 out of the past 18 weeks, marking the first time such a trend has occurred since 1971.
According to Henry Allen, macro strategist at Deutsche Bank, the US stock market has only risen at such a rapid pace twice in four months since World War II.
He explained that the first situation occurred when the economy was recovering from recession, such as after the COVID-19 or the 2007-2008 global financial crisis; The second situation occurred in the Internet foam period at the end of the 1990s, when the US stock market soared, but the fact proved that the rise was unsustainable.
Allen wrote in the latest report released on Monday: "The last time we saw the S&P 500 index rise so rapidly in four months was in July 2020, when the stock market recovered sharply after the COVID-19 collapsed."
FactSet data shows that the rebound in the middle of 2020 was supported by a large number of monetary policies and fiscal stimulus measures. The S&P 500 index rose 26.6% from April to July, almost returning to the peak before the COVID-19 epidemic.
Looking further ahead, after the S&P 500 index hit a new low during the 2008 global financial crisis, the US stock market also experienced a significant rebound. According to data compiled by Deutsche Bank, the index rose by more than 25% in the four months ending June 2009, after the "most severe stage" of the crisis had passed.
"As expected, a recession usually leads to a significant sell-off in the stock market, and then when the economy starts to improve again, the stock market usually recovers quickly," Allen said.
According to this report, there is another situation that can make the stock market so "crazy" - for example, the Internet foam more than 20 years ago. At that time, the S&P 500 index rose 26% in the four months ending in July 1997. Subsequently, the foam burst and the stock market fell for three consecutive years from 2000 to 2002.
Looking at the recent stock market, since bottoming out in October 2023, the S&P 500 index has risen by 21.5% due to increasing hopes of a soft landing in the US economy, expectations that the Federal Reserve will soon begin cutting interest rates, and investor enthusiasm for artificial intelligence (AI).
Allen said, "It is rare to see such a rapid rebound, usually because the economy is recovering from recession, and the stock market has just experienced a downturn. The only time after World War II that it was not a 'recession recovery' occurred in the Internet foam."
Therefore, he pointed out that the rarity of this situation may cause people to worry that the recent stock market rebound is also a foam.
In fact, market participants have been debating whether the pursuit of the so-called "seven giants of science and technology" in the past year is similar to the era of the Internet foam. In that era, the stock market also experienced a wave of technology stock speculation, but ultimately plummeted, triggering a mild recession.
"In summary, this rise is very similar to the previous two rises," he said.