It doesn’t take much effort to find bearish sentiment about stocks or the economy right now. CNN’s Fear & Greed Index, an amalgam of seven discrete market sentiment indicators, is still in the “Extreme Fear” zone. Generally, market bottoms are associated with extreme fear while tops are associated with extreme greed. And it generally works; the gauge was pegged in the “Extreme Greed” zone at the beginning of this year.

As I said a couple of weeks ago, if this was a “normal” market I’d be buying with both hands. Sentiment this negative is rare and almost always a buy signal. It is the nature of bear markets, however, that they are rarely “normal”. All bear markets throw up things that are “different this time” that makes an investor pause over the buy button. In that sense, this bear market is normal – for bear markets. In this case, it is the government response to the virus that is abnormal, not the COVID epidemic. We’ve had epidemics before. We’ve never shut down a quarter of our economy so abruptly.

Whether the shutdown was necessary or an overreaction is something we won’t know for many years, if ever. It may well be that we’ve only made this worse by trying to limit the spread rather than letting it run its course. I don’t know and won’t waste my or your time pondering the question. It frankly doesn’t matter because the shutdown is here and we have to live in the world we have.

The question we now face is what we should do in the face of the uncertainty; not of just the virus, but any future government response. Even if this calms down in the summer, as many flu-like viruses do, the odds are it will return in the fall. We can’t shut down the economy this way every time this thing makes a comeback. If it recurs, we are going to have to find a way to live with it.

Which makes me wonder about another aspect of market sentiment I’ve noticed. While the aggregate of investors seems quite bearish according to the market indicators and surveys we watch, there is also a cohort of investors that sees this as nothing more than the latest buying opportunity. I’ve spent a good deal of time the last few weeks talking to investors, some of them clients, some not. And the question I’ve gotten most frequently, by a wide margin, is this: “Is it time to buy stocks yet? Should I dollar cost average in or just jump in right now? When do I buy?”

The dichotomy of market sentiment is that while the majority of investors is bearish, there is a loud and aggressive bullish contingent, ready to buy at the slightest hint that the virus is peaking and the government might let us all go back to work. Generally, this cohort believes the Fed actions trump all, that stocks rose in the previous iterations of QE and they will this time too. There is little in the way of intellectual capital expended on such a view but that may not matter in the short-term.

Markets are trading on pure emotion at this point as there really are no economic fundamentals upon which to base a logical case for investing in any asset class. And the emotion is driven by expectations regarding the course of the virus and when the restrictions on economic activity and personal contact will end. Today, after some seemingly good news on the virus in Europe and NY, stocks are up 5%. Will it last? I suppose so if the good news continues but if progress on the virus proves ephemeral, so will the rally.

Given the current market sentiment, I would not be surprised at all to see stocks continue to rise in the short-term. The bulls are the contrarians at this point and are gaining the upper hand in a thinly traded market. But the economic case for being bullish is still pretty thin and I don’t expect any rally to change the trend, which is still down. If past bear market rallies are any guide, I would not be surprised to see the S&P 500 rally all the way up to the now falling 50-day moving average which would probably intersect around 2800.

That’s a healthy gain from here for sure, and it may come quickly if the news flow on the virus remains positive. But the longer-term economic outlook remains quite subdued and I would expect such a rally to ultimately fail. The bull case here rests on the idea that the government response to this pandemic will be effective both medically and economically. Those of you who know me will not be surprised that I find that a tad optimistic. If anything, the fiscal and monetary response may delay any real recovery rather than enhance it. I’ll have more to say on that in a couple of days.

It is tempting to think that the worst is over and everything can just go back to the way it was before but I don’t think that is realistic. I won’t say, as so many others are, that this changes everything! But I do think it changes some things significantly. The economy would have had to change in the face of this virus regardless of the government’s actions. We can see that in South Korea where even though there was no mandate to close “non-essential” businesses and the virus has largely been contained, restaurants, bars and shops are still mostly empty, just as they are here. We will eventually feel comfortable in crowds again, but it won’t be soon.

How the global economy will change as a result of COVID-19 is not something we can know for sure at this point but it will change. And no matter what the government response, it will take time to transition to whatever the new normal turns out to be. What the stock market – or any other market for that matter – does in the short-term doesn’t mean all that much. Investors – as opposed to traders – should be focusing their efforts on the long-term implications. That’s what we’re doing here at Alhambra and later this week I’ll share with you some of our preliminary observations.