Was the Stunning Rebound in U.S. Stocks Just a "Dead Cat Bounce"? Similar Scenarios Have Played Out in Past Market Crashes

Following US President Trump's announcement to temporarily suspend reciprocal tariffs on most countries, the US stock market surged across the board, with the Nasdaq Composite Index skyrocketing over 12% on Wednesday. However, historically, every stock market crash has seen similar significant rallies like Wednesday's.

The Nasdaq Composite Index recorded its second-best single-day performance in history on Wednesday, also marking the largest single-day gain since January 2001 (during the dot-com bubble burst).

Including Wednesday's performance, 22 of the Nasdaq's 25 best trading days in history occurred during the dot-com bubble burst, the 2008-09 financial crisis, or the early stages of the COVID-19 pandemic. Another was on October 21, two days after the 1987 "Black Monday," and one more in November 2022.

It is not difficult to see that the Nasdaq's largest single-day gains almost always occur during market crashes, often referred to as "dead cat bounces," "relief rallies," or "short covering," a phenomenon not uncommon during Wall Street's darkest hours.

Historically, the worst-performing month was October 1987, with a 27% decline. This was followed by a 23% drop in November 2000. March 2020 also saw a significant 10% decline. So far this month, the Nasdaq has fallen 1% cumulatively, following Wednesday's astonishing rebound, marking the worst quarterly performance since 2022 for the index in the first three months of the year.

Trump's latest decision contributed to Wednesday's rally, although the previous market crash was also his doing. Trump stated on social media platform X on Wednesday that tariffs on most US trading partners would be temporarily reduced to 10% within the next 90 days, leaving room for negotiations.

This statement boosted market optimism, leading investors to believe that the tariff measures would not be as severe as expected, immediately lifting the market previously impacted by his reciprocal tariff plans.

The biggest difference between this market turmoil and the declines in 1987, 2000-2001, 2008, and 2020 is that many investors believe this crash could have been easily avoided and might reverse with changes in Trump's policies.

Regarding Trump's latest decision, Wedbush analyst Dan Ives commented that after the president "self-destructed," this is "the news we and all of Wall Street have been waiting for."

However, attempting to predict Trump's next move is futile, and for the market, all uncertainties remain.