The share market could be headed for more declines according to analysts. This share market recovery we're seeing could actually be like the bear market rally we saw in 2008.
It's widely accepted that the GFC started in 2007, and that the bottom of the share market was in March 2009.
But people shouldn't be quick to think the market is going to bounce back strongly this year. I think you need to pay attention to what happened in 2008. The S&P/ASX 200 Index (ASX: XJO) rose around 15% between mid-March 2008 to mid-May 2008. And then it fell for the rest of 2008 to the bottom at March 2009.
History isn't guaranteed to repeat itself at all. But it's worth remembering today if you're projecting a strong recovery like 2009.
Bank of America's ominous warning for the share market
Analysts at Bank of America have outlined several reasons why the share market is about to go through more pain, according to reporting by the Business Insider Australia.
We're currently in US earnings season. Already 80 businesses have withdrawn guidance, 20 have reduced dividends and 60 have stopped their share buybacks.
The shocking oil price movements could also cause shares to fall. Particularly if people decide to move funds out shares due to their strong short-term performance.
BOA analysts think that the swift end of market volatility shows that the market is being too optimistic about the recovery.
Various other bear markets have included rallies and then gone on to test the lows again. It wasn't just 2008, it was also 1987 and 2002 that saw short-term recoveries.
My take
It's impossible to know what the share market will do with so many different factors at play. This economic disruption is far wider than the GFC. But there's also a lot more support from central banks and governments.
I find it hard to believe that the market bottom will only be a month after the market declines started, so patient investors could be rewarded. But I do think it could be wise to continue to put small amounts of money to work at these lower prices if your favourites are good value.
