The stock market has been on a strong run lately, but some analysts believe investors should pay attention to what history may be saying.
Over April and May, the S&P 500 gained more than 16%, making it one of the strongest two-month rallies seen in decades. Deutsche Bank said moves of this size have occurred only four other times since World War II.
Most of those past rallies came after major economic downturns. Similar rebounds followed the 1970s oil crisis, the 2008 financial crisis, and the COVID-19 market crash, as stocks recovered alongside improving economic conditions.
History’s closest match
One example stands out. The S&P 500 surged in early 1987 without a recession beforehand. Later that year, the market suffered the Black Monday crash. Before the downturn, the index had gained about 39% by August as investors worried about rising interest rates, expensive stock valuations, and growing U.S. trade and budget deficits.
That comparison has attracted attention because today’s rally also has not followed a recession. Deutsche Bank strategist Henry Allen recently described 1987 as the closest historical parallel to current market conditions.
Technology companies have played a major role in the latest surge. The information technology sector is up more than 27% this year and has jumped over 45% since the market bottomed on March 30. Data from Bespoke Investment Group showed that 38 of the 50 best-performing S&P 500 stocks during that rebound came from the technology sector.
Risks beneath the rally
Questions are also emerging about the strength of the broader market. A relatively small group of technology stocks has been responsible for much of the recent gains, raising concerns about narrow market participation. However, other risks still remain.
Deutsche Bank highlighted inflation concerns, strain in the Treasury market, and oil prices that have stayed relatively calm despite ongoing disruptions in the Strait of Hormuz. For now, major U.S. indexes remain near record highs. Still, history suggests investors may want to keep an eye on what comes next.
