On Tuesday, the S&P/ASX 200 Index (ASX: XJO) officially entered into bull market territory once more. That means that the bear market we had been enduring since March ended up being the shortest in the ASX's history.
See, a bear market is declared when a market index (like the ASX 200) declines more than 20% from its previous high. Conversely, a bull market is declared when the index rises more than 20% from its most recent low.
And since the ASX 200's March low was 4,546 points, we are now officially in bull market territory.
Hallelujah! The worst is behind us and it's business as usual, folks! Time to enjoy the gains we've been accustomed to over the past few years.
Well, not so fast.
This may sound cynical, but I think investors should be wary. Very wary. Throughout history, market crashes have come replete with false recoveries. One only has to look at how the ASX 200 performed during the GFC bear market between 2007 and 2009 to know this to be true.
This coronavirus and the subsequent economic shutdown it is inflicting on investors has only just started to filter though in quantitative terms. We won't know the full extent that company earnings and unemployment numbers will be affected for some time. That's why I think this current bull market we have just entered into might be a little premature.
In other words, we're far from being out of the woods yet.
If the earnings numbers are one iota worse than what investors are expecting, I wouldn't be too surprised at all if the share market gets the wobbles once more. Markets thrive on certainty and deplore uncertainty. And uncertainty abounds right now, despite what investors are clearly hoping for.
A silver lining in every cloud
Now for some positivity!
Even if the markets descend back into volatility, it will bring some good news for long-term investors. Bear markets and crashes are never fun, but they do give investors the opportunity to pick up some top-notch companies for very cheap prices.
So if (like this writer) you're not convinced this bull market is as certain as it appears, now is a good time to increase your cash position, just in case that rainy day does come. Having a foot in both camps and a bet both ways is completely permissible in ASX investing – so why not make sure you're ready for anything!
