It is so common to have a meaningful stock market recovery at the beginning of major stock sell-offs that the concept was enshrined as the “return to normal” stage in Dr. Jean-Paul Rodrigue’s famous “Stages in a Bubble” chart from 2008 (see yellow circle in chart below)

Stages in a Bubble:

Source: https://transportgeography.org/contents/chapter3/transportation-and-economic-development/bubble-stages/ and annotated by Lantern Capital (yellow circle)

Given the set-up now: the end of a business cycle, the end of the stock market’s supercycle with near all-time high valuations, the stock market is almost certainly due for a larger drop ahead, but it is typical to have a strong recovery first, not unlike the last four weeks. The S&P 500 has risen 12.3% since early April.

Jean Paul Rodrigue characterizes the stage this way,

Confidence and expectations encounter a paradigm shift, not without a phase of denial where many try to reassure the public that this is just a temporary setback. Some are fooled, but not for long.

From and including The Great Depression, there have been six major sell-offs in the stock market (S&P 500) exceeding 30%; periods like what I think is ahead for the stock market. Each of these has a version of this phase. Below, I show charts of them (black ovals) and a newspaper quote or two to help explain what the discourse sounded like at the time. Newspaper quotes are taken from the New York Times as that paper’s entire history is made available to subscribers. The date of the quote is indicated by a small New York Times logo (old-fashioned capital T) in the chart.

1. The Great Depression, 1929-1932

a. From an article on 10/12/1929: 

The plain fact remains that the strain of money is apparently over, for the time being.

and, 

Although there are many readjustments under way in the industrial field, it is quite evident that business as a whole continues to swing along at a comfortable pace. As one trade authority put it yesterday: “The significance of signs of a contraction in certain lines [of business] from an unusually high level of activity has been magnified and the subsequent appraisal [stock recovery] has been more in keeping with the actual facts.” It was hardly to be expected that maximum records could be maintained indefinitely.

b. From an article on 3/16/1930:

Springtime revival there certainly will be; no year has ever passed without a quickening of activities in that season, compared with midwinter. But that is not what is meant by the hopeful predictions. Return to normal meant resumption of business on the scale, if not of 1929, at least that of 1928 or 1926.

2. 1937 – 1942

From an article on 7/7/1937,

The strength and moderately improved activity in the securities markets in the last few days have completely changed the attitude of the financial community. As one broker facetiously remarked yesterday, “Hope has supplanted gloom.” However, the consensus is very much divided as to how long this recovery will last. Some are of the opinion that that it is a technical readjustment following the severe decline in prices in the last two months, while others are of the belief that that it is a prelude to much higher markets next Fall when a more definite idea of the year-end distributions may be had. In several groups, particularly the oils and coppers, earnings are running considerably ahead of 1936, and the belief is that some rather larger distributions will be made in order to avoid the undistributed-profits tax. Such distributions, it is argued, should result in improved conditions generally in the securities markets.

3. 1968 – 1970

From an article on 4/30/1969,

…Wall Street analysts attributed the upswing to the market’s recent ability to withstand unsettling news ranging from stringent credit conditions to the outlook for a decline in corporate profits in the second half of 1969. On Monday, the market had closed slightly higher in its initial reaction to the resignation of President de Gaulle. Thus, the fact that the market ignored the political and monetary uncertainties touched off by his resignation gave increased confidence to investors and traders yesterday. “You can feel that old zing spirit again”, declared a jubilant broker in mid-Manhattan as he reached for the buzzing telephone. “It’s a lot different from the dark days of February when the market was falling apart.”

4. 1973 – 1974

From an article on 9/30/1973,

Now the negative psychology that dominated the market’s mood has been replaced by an almost equal enthusiasm — an enthusiasm that money managers are striving to keep under control. One observer who meets with money managers almost every day comments: “Only two weeks ago, I was the only bull, Now I’m the only cautious person. When things move this fast, it scares me.” There is certainly room for further gains, even though the market has been strong for nearly two weeks with volume repeatedly surging above 20 million shares a session. Gene Sitt, a top money manager at Investors Diversified Services, notes that 80 per cent of listed stocks are selling at price earnings ratios 25 per cent lower than they were at the first of the year. Mr. Sitt reads market gains into the fact that mutual funds’ cash totaled 9.2 per cent of assets at the end of August, or the second highest cash level in the last three years. Cash totaled 9.7 per cent of assets at the market bottom in 1970, he adds. Meanwhile, margin debt has “dropped $2‐billion” in the first eight months of this year. To Mr. Sitt, this means “less forced selling if the market goes down and more money to put into the market if investors choose to do so.” Pension funds get about $1‐billion in new money every month, and he reasons that most of this had been held out of the market. He predicts that foreign money will come in since the Japanese and European markets are down about 10 per cent while the United States market has been going up. Foreigners know that the balance of trade has turned dramatically in our favor, with the dollar no longer overvalued as it was. With stocks in the United States selling at 13½ times 1973 earnings in terms of the Standard & Poor’s index of 425 industrial stocks, this is “cheap” relative to other countries’ markets. Issues on the Tokyo exchange are selling at close to 20 times earnings, Mr. Sitt said.

5. 2000 – 2003

From an article on 7/8/2000 describing a similar labor market to now,

After a disastrous drop in jobs in May, American companies added modestly to their payrolls in June, creating 206,000 new jobs, the Labor Department reported yesterday, reinforcing the impression that the economy is slowing. Job creation in the private sector has now fallen from an average of 244,000 a month in the first quarter to only 110,000 a month from April through June. But if companies are reluctant to hire, they are still hiring in sufficient numbers to keep the unemployment rate at only 4 percent last month, down from 4.1 percent in May — the lowest levels since the late 1960’s. ”Economic growth is slowing, but gently, so far,” said James Glassman, a senior economist at Chase Manhattan Bank.

From an article on 8/29/2000,

…it was a very good day for brokerage firms and financial services stocks. Merrill Lynch rose $3.09, to $140.47; Lehman Brothers jumped $3.44, to $137.25; Goldman Sachs closed at $122, up $2.63; and Donaldson, Lufkin & Jenrette gained $4.69, to $65.81. ”Leadership has clearly shifted to sectors that are interest rate sensitive,” said Jim Paulson, chief investment officer at Wells Capital Management. ”I think we are going to new highs.”

6. 2007 – 2009

a. From an article on 12/7/2007,

Investors are having a collective sigh of relief that this [stock market recovery] is a positive signal the housing crisis and credit crunch will not cause the end of this bull market,” said Hugh Johnson, chairman and chief investment officer of Johnson Illington Advisors. The stock market has been volatile since the summer, rising on signals that the worst of the credit problems were over and then dropping on hints that they could persist well into next year.

b. From an article on 5/18/2008 (note: the recession began in December 2007),

Stock markets are up sharply since March. The recent batch of economic data has not looked as dire as feared. The U.S. Federal Reserve is finding fewer takers for its loan auctions. A fine-art sale drew a record $86 million price for a Francis Bacon painting. So is the U.S. recession off? So far, so good – or at least not so bad. However, there are still quite a few dark clouds on the horizon. “Although GDP has been stagnant, the economy does not look to have slipped into an outright contraction during the first half of the year,” said Bruce Kasman, chief economist with JPMorgan in New York. While that is not exactly a ringing endorsement, it is certainly a vast improvement from the bleak projections that were the norm just a few weeks ago, when markets were braced for economic disaster. With euro-zone growth coming in stronger than expected for the first quarter and emerging markets showing resilience to the slowdown in the developed world, the financial doom and gloom has given way to a renewed sense of optimism.

7. Now, 2025 – ??

From an article on 5/2/2025,

Stocks on Friday erased losses suffered in the days after President Trump’s chaotic rollout of tariffs in early April, bolstered in part by a healthy report on the labor market. The S&P 500 rose 1.5 percent on Friday, climbing back above where it stood before chaos descended on financial markets after April 2 — Mr. Trump’s so-called Liberation Day, which featured his most sweeping tariffs to date. Friday’s boost to stock prices followed a stronger-than-expected report on hiring in April. But the S&P 500 has been edging higher for days — logging nine consecutive daily increases — as Mr. Trump and members of his administration raised hopes that trade tensions would ease, including by indicating they were willing to engage in talks with China.

How long will this one rise and last? My sense is that it will end soon from further weakening economic data, the Fed acknowledging economic weakness (as soon as tomorrow), or further evidence that tariffs are here to stay. Economic negativity continues to mount. Attributions of these “return to normal” moves come from whatever idiosyncratic things are going on at the time (like tariffs now) but are ultimately a hope for, and remnants of behavior from the prior bull market driven by somewhat less of the acute thing that started it. Don’t be fooled, there is a bigger cycle at play here than just tariffs. The stock market is a long way from its bottom and a period like the last four weeks is a normal feature in the process of breaking of a bubble.