Here are the signs that the bear-market rally in stocks won't last long - Citi

U.S. stocks have clawed back much of their losses from the first half of the year, but the three major indexes tumbled this week under reviving fears about interest rate rises by the Federal Reserve, and there are signs that the bulk of the bear-market rally is already behind us, said Citigroup’s analysts.

“Bear market rallies are often sentiment driven, as the market just becomes too bearish,” wrote Citi Research strategists led by Dirk Willer, the managing director and head of emerging market strategy, in a note on Thursday. “More fundamentally, many bear-market rallies are driven by hopes that the Fed comes to the rescue. The current one is no different, as the Fed pivot narrative has been an important catalyst.

Meanwhile, the SKEW index for the S&P 500, which measures the difference between the cost of derivatives that protect against market drops and the right to benefit from a rally, normalized almost as much as it does in the median bear market rally , said Citi Research. The index can be a proxy for investor sentiment and volatility.

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