The stock market threw a little party this week, and suddenly everyone thinks the bear market is dead. Don’t bet the farm on it.
It’s tempting to look at a few days of green arrows and assume the worst is behind us. You want the pain to stop, and Wall Street wants you to start buying again. But a recent report from MarketWatch warns investors not to get too excited about this week’s rebound. They’re right to be skeptical, and you should be, too.
If you’re buying stocks right now just because the market ticked up, you’re playing a dangerous game. Here are four reasons to ignore the stock market rebound hype.
1. Bear market rallies are designed to trick you
When stocks plummet, they rarely fall in a straight line. They bounce. It’s a psychological trap that sucks in eager buyers right before the floor falls out again.
This classic move is called a bear trap.
These temporary spikes are normal during prolonged downturns. If you’re freaking out about the stock market, jumping into a surge just to feel better isn’t a great way to manage your investments.
2. The geopolitical chaos isn’t resolved
We’re still watching global uncertainty dictate prices. You can’t have a stable bull market when foundational costs are unpredictable.
Global oil prices are still hovering above $100 a barrel amid the ongoing Middle East conflict, and even if the war ends, it’s going to be a while before things get back to normal.
Energy shocks act like a tax on every business and consumer. Until that pressure actually subsides, any market surge is built on sand.
3. Corporate earnings still face a brick wall
A stock’s price is ultimately tied to a company’s ability to make money. Right now, companies are dealing with higher borrowing costs, stubborn inflation, and consumers who are running out of extra cash.
When businesses report their earnings in coming weeks, we’re likely to see profit margins shrink. A few days of optimistic trading doesn’t change the math on corporate balance sheets.
4. Volatility is the only guarantee
We’re in an environment where a single news headline can wipe out a week’s worth of gains in an hour. Real recoveries take time to build a foundation.
What we’re seeing right now isn’t a foundation; it’s a reaction. True financial independence comes from sticking to the golden rules of becoming a millionaire, not gambling on short-term price swings.
What I’m doing now
I’ve learned from 45 years in the investment trenches not to try to time a market bottom. You can’t outsmart a chaotic market, and guessing wrong can be painful.
I’ve bought into an S&P 500 exchange-traded fund twice so far as the market cratered. I’ll continue to add to my positions, and I suggest you do the same. That way, if my warnings are wrong, and the market goes to the moon, you’ll participate. But if this is a bear trap, you’ll still have money on the sidelines.
Use this time to review your strategy. Keep some powder dry. Do what I’m doing and dollar-cost average — invest a fixed dollar amount regularly and stick to a strict schedule. Use broad index funds and, to the best of your ability, ignore what the market did yesterday or what it might do tomorrow.
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