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The stock market is experiencing its best rebound since 1938

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Investors haven't seen a rally like the stock market's recent rebound in more than 80 years. In the 27 trading days from when the market hit its low on March 23 through Wednesday, April 29, the S&P 500 has surged more than 31%. That's its biggest rally in a comparable time period since 1938.

In that time, the S&P 500 has achieved the kind of gains that historically have taken years. To put the current rally in perspective, since the 1920s, this benchmark has experienced higher annual returns only six times: 1954, 1933, 1935, 1958, 1995, and 1975, according to FactSet figures analyzed by Grow.

And April is the best month in decades for the S&P 500.

It's important to remember how quickly the market fell, of course, too. After reaching an all-time high on February 19, the S&P 500 tumbled nearly 34% to a nearly four-year low on March 23. And this marked its fastest-ever descent into a bear market, defined as a decline of at least 20% from a recent high.

For now, it seems that traders are looking past some of the bleak reports about the U.S. economy. On Wednesday, a report showed that gross domestic product (GDP) shrank 4.8% in the first quarter, its biggest contraction since the financial crisis. Other reports have shown that more than 30 million Americans have filed for unemployment benefits in the past six weeks.

"The market's rally is pretty staggering considering the degree of pain we're experiencing within the economy," says Mark Hackett, chief of investment research at Nationwide. And the recent rally illustrates just how quickly sentiment has changed on Wall Street: "The market has gone from emotionally fearful to emotionally hopeful very, very quickly."

Here's how to put the market's moves in context.

'We're at risk of an emotional shift again'

Both the decline and recovery in stock prices have happened incredibly fast by historical standards. While the major benchmarks have risen in excess of 20%, the amount necessary to deem that a bear market is over, experts have been reluctant to make a call on whether that means the declines are, for the most part, behind us.

Of the past 12 bear markets since World War II, on average, it took the S&P 500 about 13 months to fall from its high to its eventual low, analysis by CNBC and Goldman Sachs. And it took another two years, on average, for this benchmark to fully recover.

At its current level, the S&P 500 now is 13% below its February high. And while the market is meant to be forward-looking, rather than relying on current data, the recent rally is confusing, given that the economy is struggling.

According to Hackett, the truth of what the market is broadcasting may lie somewhere in the middle: "It probably wasn't as bad as it felt a month ago, but it's not as good as it feels today."

That's why Hackett cautions that the market is "reasonably susceptible" to some change in sentiment that could drag stock prices lower. "We're at-risk of an emotional shift again," he says. "The sentiment rally we've seen is fragile because it's not necessarily built on anything other than a shift in emotion and fear."

'It's making a lot of investors nervous'

After this big surge in stock prices, "the question now is whether the market has gotten its arms around what the worst looks like from an economic standpoint," according to Keith Buchanan, portfolio manager at Globalt.

From Buchanan's perspective, there still are many uncertainties, including whether the gradual reopenings in some states work as envisioned, and how comfortable Americans feel about congregating in groups again.

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Even as Buchanan debates such questions, other market participants are signaling more optimism. The recent rally shows that traders are wagering on a "V-shaped recovery," in which the U.S. economy quickly bounces back to its pre-pandemic pace of growth, he says.

"It's hard to get behind a rebound in the market when the assumption is the economy gets back on solid footing, and that's the bet this rally is making," Buchanan says, adding that "it's making a lot of investors nervous."

Keep a long-term disciplined approach

One of the biggest lessons the past few months will have taught investors is just how quickly sentiment can change on Wall Street. That's why experts always caution that even if emotion is driving the market as a whole, you should remain calm and not let that influence your investing decisions.

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Back in March, with the market down more than 30% from its all-time high, no one would have accurately predicted that the S&P 500 would have surged more than 30% by the end of April. Given the uncertainties unique to this pandemic, that's why both Buchanan and Hackett caution there could be further declines ahead.

"Keeping a longer-term, disciplined approach is better right now," Hackett says. 

Experts cautioned that you shouldn't sell, or make any radical changes to your investment strategy, when the market was veering lower. It's important to be mindful of what's driving any potential investing decisions now, as well.

"You try to control your emotions on the downside, and I think the same discipline is prudent on the upside, as well," Buchanan says. 

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