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Is the bear market already over?

After U.S. and Canadian stocks posted their third consecutive day of gains on Thursday, investors and analysts are asking if the sharp sell-off of the past month actually ended with a thud on March 23.

The reason: The brisk rebound since then has mirrored the selloff.

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In its best three-day stretch since 1933, the Standard & Poor’s 500 Index has rebounded by 438 points since its low on March 23 – or nearly 20 per cent – a gain that is close to qualifying as the start of a new bull market. Canada’s S&P/TSX Composite Index has risen by 2,198 points, or 19.7 per cent.

Not everyone is convinced that stocks are in the clear, though.

“Though we expect the S&P 500 to be higher at year-end 2020, we remain unconvinced that the U.S. equity market has seen its absolute lows for the year,” Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets, said in a note.

She added, more ominously, that the path of the S&P 500 resembles late 2008 – when stocks recovered some lost ground in September and October, only to plunge further over next several months as the financial crisis intensified.

The S&P 500 is still down 22 per cent from its February highs, and the TSX is off 25 per cent.

The backdrop to this week’s gains certainly remains grim. Cases of COVID-19 are rising, the death toll is surging and large parts of the North American economy remain shuttered.

In the United States, nearly 3.3 million people filed for unemployment claims last week alone – a record. And Ottawa expects that 4 million people will apply for financial relief under its new Canada Emergency Response Benefit.

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But investors tend to place more emphasis on the future, and they may be speculating that the current economic crisis will abate because of central bank monetary stimulus, government relief packages and hope that widespread lockdowns will beat the novel coronavirus pandemic relatively soon.

Optimists can point to a pickup in insider buying by key corporate executives as a potentially bullish indicator.

“Insider buying and selling are far from perfect signals that a company’s stock will rise or fall. But sometimes, large purchases by corporate leaders at key times have profited investors who followed suit,” Ed Yardeni, chief investment strategist at Yardeni Research, said in a note.

Mr. Yardeni added that insider buying is now ramping up again. Among S&P 500 companies, 18 executives have made purchases of 10,000 shares or more so far in March, up from just seven insider buys in February and two in January.

These savvy insiders – who know their businesses better than anyone – may believe that panic driving the recent sell-off is overestimating the real risks their companies face.

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They have some support. Goldman Sachs analyst Noah Poponak argued in a note released on Sunday that investors should buy shares of Boeing Co.

The beleaguered aerospace giant’s share price has fallen as far as 70 per cent during the downturn, and it has become a centrepiece of the bear market. But Mr. Poponak argued that the company will thrive after travel returns to normal – a view that is not reflected in its beaten-up stock.

“Sentiment is near an all-time low, expectations are near an all-time low, and a lot of bad news is priced in,” Mr. Poponak said in his note.

Boeing shares have nearly doubled in price this week..

As for Canadian banks, a recent note from Fitch Ratings underscores both threats and the staying power of Canada’s largest lenders. Yes, financial stress on Canadian households is bad for banks and interest rate cuts will erode their profitability. Fitch revised its credit rating outlook on Canada’s banks to negative from stable.

But some perspective also helps. “Fitch notes that Canadian bank ratings are among the highest in Fitch’s bank universe and continue to benefit from a system concentrated in a relatively small group of banks with a national presence, characterized by diversified business models and high market share,” the rating agency said.

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Analysts at National Bank Financial looked at battered Canadian real estate investment trusts (REITs). Their unit prices have been hit especially hard during the downturn because of concerns that their liquidity – or ability to tap financial markets for new loans – would likely dry up in a sustained downturn.

But the bank’s analysts conclude that the REIT sector’s ability to tap funding is holding up. “With the significant liquidity measures employed by central banks and CMHC [Canada Mortgage and Housing Corporation], we have heard from most management teams that lenders have been supportive when it comes to extending/refinancing debt.”

Despite the encouraging market rebound and some optimistic analyses, there is no clear signal that North American stocks are on the mend.

“As bear markets go, the February/March swoon in the S&P 500 has been brutally quick but remarkably average in terms of its scale,” Shaun Osborne and Juan Manuel Herrera, foreign exchange strategists at Bank of Nova Scotia, said in a note.

The S&P 500 plummeted 35 per cent in just 25 days in this crisis.

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But the magnitude of the decline merely matches the average bear-market since 1980, and pales next to the 52 per cent decline during the 2008-09 financial crisis.

Ms. Calvasina of RBC Dominion Securities is cautious for a couple of key reasons. She believes that investor sentiment is still fragile and most market bottoms take time to form.

“We are growing increasingly skeptical about the V-shaped recovery thesis in stocks. ,” Ms. Calvasina said.

Christopher Wood, a strategist at Jefferies Group, is similarly skeptical of a sustained rebound, given how overvalued U.S. stocks were at the outset of the downturn.

“The price-to-sales ratio had never been so expensive, while U.S. earnings were being distorted by financial engineering in recent years,” Mr. Wood said in a phone interview, pointing to massive share buybacks by many leading companies.

“My base case is that this is a three-to-four month affair,” he said.

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