Today, the S&P/ASX 200 Index (ASX: XJO) is up a paltry 0.7% after a gangbuster week of gains last week.
After falling as much as 36% from its all-time February high by late March, the ASX 200 has now recovered so significantly that it is now down only 23.8%. To put it another way – the ASX 200 has now rallied 18% from its low point in just three weeks.
Because of these moves, many investors might be wondering if we have now seen the bottom of this ASX bear market. After all, it will only take another 0.45% of gains to end this bear market and put ASX shares back in bull market territory. If that does occur, it will mark this bear market as the shortest in history – the GFC bear market lasted around 18 months for some comparison.
Why has the ASX seemingly turned a corner?
These market moves might seem strange to an outsider. It's not like things have gotten better for the global economy. Coronavirus cases continue to rise, especially over in the US (which is the financial centre of the world). Even though the curve is showing early signs of flattening here in Australia, there are no signs yet that life and the economy will go back to normal anytime soon.
Remember, markets are a forward-looking mechanism and there are significant forces that are countering the pessimism surrounding the coronavirus.
The Reserve Bank of Australia (RBA) is currently intervening in the economy at a depth we have never witnessed before. It has placed itself as a quasi 'lender of last resort' to Australian banks. It has also (for the first time ever) been actively buying government bonds – which is an action that lends considerable stability to the financial system.
In combination with this action from the RBA, the federal and state governments are also pouring money into the Australian economy, with payments like JobKeeper and JobSeeker, as well as a variety of other stimulus measures. All of these actions combined are likely to be behind the current ASX market strength, in my opinion.
Foolish takeaway
Even though the markets are well off their March lows, I'm still investing with a high degree of caution. When ASX companies start wheeling out their earnings numbers for the current period, I think everyone is going to get a pretty nasty shock as the damage from these shutdowns is quantified. But who knows… guessing the market's moves is a fool's game in the end (and not the good kind of Fool!).
