Skeptical about the stock market? You’re not alone Bear market rallies have been seen before, but be wary

Just because stocks have scrambled nearly all the way back to their record heights doesn’t necessarily mean the market is in the clear.

Stocks have a history of making big gains within long-term down markets, only for the bottom to give out again. Such rallies were regular occurrences during the Great Depression, and they’ve been recurring in some of the most recent downturns. They’ve happened often enough that Wall Street calls them bear market rallies.

As if to underscore that, Wall Street paused Thursday as the S&P 500 fell for the first time in five days, losing 10.52 points, or 0.3%, to 3,112.35 after being on track earlier in the day for its longest winning streak since December. The Dow Jones Industrial Average rose 11.93 points, or less than 0.1%, to 26,281.82, and the Nasdaq composite fell 67.10, or 0.7%, to 9,615.81.

While many analysts say they don’t expect stocks to fall back to their lows set in March, much of Wall Street says the recent surge of nearly 40% for stocks may be setting investors up for disappointment.

“There’s no question that it’s going to be a choppy recovery,” said Rich Weiss, chief investment officer of multi-asset strategies for American Century Investments. “I have no doubt there will be setbacks.”

At first, it was massive rescue programs by the Federal Reserve and Capitol Hill lifting the market, and more recently it’s been hopes that the worst of the recession has already passed or will soon as businesses begin to gradually reopen across the country. And at each step of the way, many professional investors have said they think the rally has been too much, too fast.

A little more than two thirds of fund managers say this is nothing more than a bear market rally, according to the latest monthly survey by Bank of America conducted in May.

Doug Ramsey, chief investment officer at Leuthold Group, says the market’s recent climb has failed to check off many of the indicators typical of true market bottoms, such as transportation stocks leading the initial stages of the upturn and the S&P 500 dropping below a certain level relative to corporate earnings.

What could trip up this current rally?

■ A second wave of infections: More than anything, the market’s trajectory will depend on what happens with the spread of the coronavirus. If more waves of infections sweep the country as economies gradually reopen, it could lead governments to announce new lockdowns that would again choke the economy further into recession.

■ This fall’s elections: If Democrats can gain control over the White House and Senate, it could mean tax rates are set to rise for businesses. That would crimp profits — the lifeblood of the stock market.

■ U.S.-China troubles: It was only earlier this year that the United States and China signed a deal marking a truce in their bruising trade war. But tensions have been on the rise again, with complaints from both sides about China’s control over Hong Kong and each country’s efforts on containing the coronavirus.