After weeks of volatility following last month’s historic plunge, stock markets rallied this week, offering a glimmer of hope to investors that the global economy may be turning a corner — however tentatively — on the COVID-19 pandemic.

Buoyed by optimistic statements from the White House and the measures taken by the U.S. Federal Reserve to soften the pandemic’s blow to the economy, the S&P 500 continued to climb out of the depths it plumbed in late March. The TSX also rose, increasing by 9.5 per cent over the course of the four-day week. The S&P/TSX Composite index has grown by 25 per cent since bottoming out on March 23.

Market analysts attributed the recent gains to a surge of optimism on the Street — but cautioned that the future is uncertain and the rally was fuelled more by hope than any concrete indicators that the global crisis is on the wane.

“I think people are grasping for things to feel positive about,” said David Baskin, president of Toronto-based Baskin Wealth Management. “Frankly I think the situation is still very much up in the air. It’s very uncertain as to what’s going to happen next.”

Still, there were some encouraging signs around the world this week that physical distancing and other public health measures are having a positive effect on the rate of new COVID-19 infections.

“We are flattening the curve,” New York Gov. Andrew Cuomo said on Wednesday.

Those positive notes translated to the markets, said Kristina Hooper, the New York-based chief global market strategist at Invesco. “I think that was powerful,” she said. “This is a time when we want to see that health policy is paying off.”

Hooper warned, however, that a deadlock in Congress regarding additional fiscal stimulus measures would send stocks back into decline. “This week’s rally could be lost if we see friction in Congress.”

Baskin and other analysts expressed skepticism of any claim that the COVID-19 situation is under control in the U.S.

“I think we’re going to see an explosion in the mid-Atlantic states and South Atlantic States, like Florida and Georgia, where they’ve had very slack rules,” he said.

In Europe, some countries have begun to lay out timelines for when economic restrictions may be lifted, while others are extending their lockdowns. Hong Kong, Singapore and Taiwan — previously celebrated for their success at containing a widespread outbreak — are reportedly dealing with a surge of new infections. So the good news is hardly universal and any optimism has been muted.

Here in Canada, where the latest employment statistics showed more than a million people lost their jobs in March, Prime Minister Justin Trudeau warned on Thursday that our current reality “is the new normal” until a vaccine is developed and that physical distancing will continue indefinitely.

The truth is it’s still too early to predict where the economy is headed at this point, Baskin said. “I think anybody who’s honest about it would say we’re in uncharted waters. We don’t know how long economic activity is going to be suppressed. We don’t know how deep the damage to the economy is. We don’t know how quickly it will bounce back.”

In the absence of certainty, there is speculation — and wild swings — in the markets.

“In normal times if the stock market value changed by one per cent in a day, that used to be considered a fairly major move,” Baskin said. “What we’re seeing in the last five or six weeks is moves of three or four or five per cent a day, or even eight per cent a day, which is crazy.”

Most of the daily fluctuation in the market is driven by high-frequency, algorithmic, speculative trading, not any fundamental change in the economy, said Drummond Brodeur, senior vice-president and global strategist at Signature Global Asset Management.

Brodeur said he expects more volatility rather than a steady incline from this point.

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“We’ve had the bounce off the bottom,” he said, referencing the lows set on March 23. “I think we’re going to find a new kind of trading range and bounce along that for a while until further clarity of the path of the virus and some of the really negative economic numbers and earnings start coming out.”

There are just too many unknowns at this point, he said. “There’s a lot more we don’t know than we do know.”

Brodeur believes that when normal economic activity is able to resume, the economy will be at a lower level overall. “Because not everyone is coming back,” he said. “There will be permanent scars.”

Some parts of the economy will suffer permanent damage, some parts will bounce back just as before and some businesses, particularly in the tech sector and health care, will see a permanent benefit, he said.

Lisa Kramer, a finance professor at the University of Toronto and research fellow in behavioural economics, saw the recent market action as a sign that we may be entering the bargaining stage of the grief cycle — a reference to the five stages of grief popularized by Elisabeth Kübler-Ross and David Kessler.

“We’re kind of all grieving the loss of our normal lives right now,” she said, adding that we’ve already been through the first two stages — denial and anger — with regards to our feelings about the pandemic.

“Now it’s like, ‘OK, it’s bad, but it’s going to get better, right?’ I think that’s kind of fuelling this feeling of optimism that many of us are sort of applying to what’s going on in markets.”

The recent market rally may also be the result of “optimism via confirmation bias,” in that people may be focusing on positive news stories and ignoring the negative ones, even though there are just as many, if not more.

Kramer, like Baskin and Brodeur, expects the volatility to continue.

“I think we’re still likely to see large movements, both up and down,” she said.

“There’s just so much uncertainty about true intrinsic value right now. As much as we might feel hopeful, many companies still can’t really say what their earnings will be going forward.”