Many investors were surprised to see the market surge recently following a 10% correction. This has led some to believe that a “V-bottom” has been put in place, leaving investors wondering whether this bounce is a sign of a bigger rally to come.
The recent market surge was not unexpected. The U.S. economy is still strong, and many economic indicators still remain positive– such as labor market stability and low unemployment. Additionally, the ongoing conflicts with China have not escalated as much as expected, and that is a cause for a positive outlook even in the midst of all the other volatility seen in the markets.
In addition to these economic factors, investors are optimistic that the government will provide additional stimulus to help the U.S. through this crisis. Over the past couple of weeks, a number of new stimulus proposals have been put forward by the government and it remains to be seen if these will be approved and help the economy recover.
However, the biggest factor that could be contributing to this “V-bottom” in the market is the recent actions by the Federal Reserve. Earlier this month, the central bank announced that it would be instituting a new round of quantitative easing (QE) to give the economy even more support. QE involves the Federal Reserve buying long-term treasury bonds to inject money into the economy. This money can then be used to finance investments and thus help to stimulate the economy.
While it is yet to be seen whether the recent market rebound is the beginning of a larger rally, many investors are hopeful that this could be the start of something bigger. With the overall trend being positive and the government taking steps to help the economy recover, investors are taking the opportunity to buy. That, coupled with the positive economic indicators and the Federal Reserve’s recent QE, could mean that a V-bottom is indeed in place to act as a foundation for a larger market rebound.