- The S&P 500 climbed 16% in April and May.
- Such a rally has been seen only four times previously, including just before the Black Monday crash in 1987.
- Deutsche Bank’s Henry Allen said that the markets are showing “dislocations.
US stocks have recorded a rare surge as the S&P 500 climbed 16% in April and May. Such a two-month rally has occurred only four times since World War II, which makes this development both historic and a potential warning sign, Business Insider reported.
The rare rally in S&P 500 in the past two months has only been seen four times since 1945, according to Deutsche Bank analysts. In three such cases, the surge came after major downturns like the Covid-19 shock, the Great Financial Crisis and the 1970s oil shock. These were the instances when markets were recovering from recession and investor confidence returned gradually.
However, one similar episode happened in early 1987, just before the Black Monday crash. This was an incident when stocks fell more than 20% in a single day. The January-February rally of 1987, followed by the crash is being closely watched by analysts. Deutsche Bank's Henry Allen noted that unlike past rallies after recessions, the S&P 500 hitting record high on June 2 has not followed an economic downturn, making it an unusual event.
"Given today's rally hasn't followed a recession, it's pretty striking that the only non-recession example since WWII of the S&P 500 rising this fast was a few months before a historic market crash," the bank's Henry Allen wrote on Tuesday.
Allen said that the markets are showing “dislocations,” with stocks climbing despite weak geopolitical and economic signals, including tensions from the ongoing Iran conflict.
He also warned of broader market “dislocations” beyond the S&P 500 rally. Allen said the US Federal Reserve could become more “hawkish” if inflation rises again. Historically, tighter Fed policy has often triggered multi-asset selloffs. This was observed in 2015–16, late 2018 and 2022, highlighting risk for investors ahead.
The bank also flagged stress in the US Treasury market. It also noted the fact that oil prices looked "remarkably contained" despite the Strait of Hormuz being closed for longer than investors had initially anticipated. With these events, the markets have stayed relatively contained, adding to concerns about unusual market behaviour.
