After the meltdown in February/March, global equity prices have staged an impressive rebound in the face of the ongoing COVID-19 pandemic and grim economic data. A just-published report updated our analysis of the MRB Stylized Investment Cycle and concluded that we are currently in the countertrend bounce stage within a bear market, or Phase 7, not yet the start of a new sustained bull market (Phase 1).
The strong equity rebound is discounting a fairly orderly re-starting of economic activity in the coming months. This looks to be a stretch given the challenges that have emerged in the early-responding countries in Asia. Despite such warnings, a gradual (albeit selective) re-starting in activity is underway in some European countries and even some U.S. states.
Abnormally rapid and aggressive policy reflation helps provide underlying support, but any stumbles on the road to economic recovery will quickly trigger equity market setbacks. We are awaiting Phase 8 in the cycle, namely a final flush that could entail a test of the March price lows, before the stage is set for a more lasting rally, i.e. the next cyclical bull market. Much hinges on a medical breakthrough that will allow broad-based economic activity to resume in a durable fashion, and so far this outcome remains elusive. Stay tuned.