Bull and Bear Markets During the COVID-19 Pandemic

Abstract

The COVID-19 pandemic has caused severe disruption to economic activity worldwide. This note analyzes what happened to the aggregate U.S. stock market during this period, including implications for both short and long-horizon investors. We identify bull and bear market regimes including their bull correction and bear rally components, demonstrate our model's performance in capturing periods of significant regime change, and provide both weekly and long-horizon forecasts that improve risk management and investment decisions. Using out-of-sample forecasts for market states to guide an investment strategy, outperforms a buy and hold strategy during the pandemic by a wide margin, both in terms of annualized returns and Sharpe ratios.