We've been here before — and pretty recently at that — and it led to frustration: Stocks are bouncing nicely off the bottom of their months-long trading range and are making a run higher.
The bulls are talking about an uptrend preserved and strong corporate fundamentals, while skeptics wonder why stocks have struggled despite all the good news and cite a tired, aging economic cycle.
The S&P 500 index is up some 4 percent in less than two weeks and is 6 percent above its early-April low. This spurt higher has taken the index from the lower reaches of its correction zone up past the midpoint of its 2018 range for the third time since February. Those two earlier upside excursions stalled and the market slunk back toward the "down 10 percent from a record high" level.
So can this rally be trusted?
It actually looks more reliable than the previous attempts. It got rolling from slightly higher levels, after several weeks when the market hung around the lows but refused to buckle beneath its longer-term rising trend.
The choppy, anxious period went on long enough that the market absorbed several shifting and sometimes conflicting negative storylines, from the chance for surging bond yields and galloping inflation to a rollover in global growth to possible trade war and blowup in popular volatility-trading funds.
More important, the market's vital signs have returned to normal in this rally attempt. The Cboe Volatility Index (VIX) is below 13, a tame level that suggests a steadier tape, compared with 15 or higher during those earlier market bounces.
The best corporate-earnings season in years is mostly in the books. The results show impressive evidence of corporate prosperity and bolster the earnings base for valuation purposes, making equities look a good deal less expensive than they did a few months ago. The S&P 500 now trades at 16.5-times the consensus earnings forecast for the next 12 months, down from 18.6-times in late January.
This doesn't exactly make stocks a bargain, but it helps compensate for the rise in bond yields. Stocks during this cycle have never had a smaller valuation cushion compared with corporate-debt yields, but that cushion is a good deal higher than it was throughout the 1990s and mid-2000s.
The wind-down of earnings season also releases companies to restart their heavy share-buyback activity. This is perhaps at least as much a psychological aid as a powerful direct source of buying demand, but in the current backdrop it helps investors feel more comfortable shouldering market risk.
The passage of more than three months' time with the indexes trading well below their peak also worked to reset investor sentiment and positioning to a more defensive condition. Bullishness among retail and professional investors has moderated. And hedge funds as a group have reduced their equity exposure dramatically since January.
On the flip side, the Wall Street dealer firms considered the "smart money" — which accommodate hedge-fund positions and take the other side of their trades — now have a bigger long position in S&P 500 index futures than they've had in two years.
The leadership profile of the market looks decent, too. Technology, industrials, energy and financials are outperforming lately — the cyclically attuned groups that a bull would want to see lead.
The small-cap Russell 2000 is also on the verge of a new high, buoyed in part by its domestic-consumer components. While small stocks have no special predictive power for the broad market, their improved relative strength lately is at least assurance that this rally attempt is not simply the work of a handful of big tech stocks, which now have such huge sway over the large-cap indexes.
This all probably sounds comforting, and should. Yet it together leads to more confidence that the recent lows would provide decent support than that an exuberant rush higher is underway.
This is why some longtime market observers are reserving a full endorsement of this rally's staying power, or its chances to continue its run toward the January highs right away.
Chart watchers who are sticklers for "key levels" believe the S&P 500 will not truly have turned the near-term trend positive unless and until it gets back above the 2,750 mark (from which it dropped hard in mid-March and hasn't revisited since).
Jeff deGraaf, a strategist at Renaissance Macro Advisors, sees the market in a healthier spot and likely to work its way higher from this correction phase. But he's unimpressed by the relatively weak momentum displayed in the latest move higher. He watches for the number of 20-day highs in individual stocks to expand as the index rises, and that has not happened in recent days. He sees this as a more selective tape consistent with "late-cycle" market conditions.
Strategists at Morgan Stanley are also focused on the status of the broader cycle, and what it means for investor returns at a time when Main Street is thriving and labor markets are tight: "After nine years of markets outperforming the real economy, we think the opposite now applies as policy tightens."
And, of course, it's possible stocks will again be challenged by some features of this stage of the cycle, whether another push higher in yields, the Federal Reserve methodically lifting rates, inflation picking up or corporate profit-margins coming under pressure.
In other words, in Ronald Reagan's famous phrasing, trust this rally for now, but verify its fortitude as new tests emerge, as they surely will.