What is a Rebound?
In financial terms, a rebound means a turnaround from previous adverse behaviour, such as a business reporting strong results after a year of losses or launching a successful product line after a period of struggle. A turnaround of stocks or other assets means that the price has gone up from a lower level.
Recovery for the general economy means that economic activity has risen from lower levels, such as the rebound after a recession. Economists describe a recession as two successive halves without economic growth. Recessions are part of a growth, peak, downturn, and recovery business cycle. A rebound from a recession would occur in the recovery stage.
Breaking Down a Rebound
Rebounds are a natural occurrence within the constantly changing business cycles. Unavoidable features of the business cycles are economic recessions and market declines. Economic recessions regularly occur when a business is growing too quickly as compared to economic growth.
Likewise, stock-market falls occur when stocks are overvalued in comparison to the rate of economic growth. Commodity prices, for example, gasoline, decline as supply exceeds demand.
In some extreme cases, such as the housing bubble, prices decline due to speculation when asset values become over-inflated. In each case, however, a decline was followed by a rebound.
Regardless of the type of downturn — whether economic, house prices, commodity prices, or stocks— a decline has traditionally been followed by a rebound in every case.
Recent Examples of Rebounds
The steep decline in the stock market that rattled markets in mid-August threw investors for a loop, with the Dow Jones Industrial Average (DJIA) falling 800 points or 3 per cent, on the worst trading day of the year on Tuesday, August 13, after the bond market signalled the possibility of a recession. But the blue-chip bellwether rebounded a bit the following day, gaining almost 100 points back after solid retail sales figures in July, and WalMart's better-than-expected quarterly results helped calm market fears.
