When will the stock market bottom out? 3 things need to happen first, says Goldman Sachs

Subscribe to Outbreak, a daily newsletter roundup of stories on the coronavirus pandemic and its impact on global business. It’s free to get it in your inbox.

The stock market rally last week may have offered investors a short-term respite from the recent carnage—and even hopes that the bear market may have been vanquished—but Goldman Sachs warns it’s still too early to declare the worst is behind us.

Last week, markets rallied from Tuesday through Thursday, lifting the S&P 500 nearly 18% in the period. But Goldman notes that isn’t anything to get too excited about: From September through December 2008, the S&P 500 saw six different one to six trading-day bounces of 9% or more, “with some rallies as large as 19%,” strategists wrote in a research note on Friday. Yet the market didn’t bottom until March 2009.

In fact, despite last week’s pop, the firm is declaring, “Tactically, we believe it is likely that the market will turn lower in coming weeks.”

That estimation makes sense for CFRA’s Sam Stovall too. He wrote in a note on Monday, “History advises investors to expect a ‘retest’ of the recent low,” he notes. “Even if the low for this bear market is already in place, the elevated volatility is expected to persist.”

For those like Thomas Hayes, chairman and managing partner of Great Hill Capital, calling the bottom is “mission impossible.” Plus, it’s “doubly hard when there’s literally no fundamental data you can reply upon because there’s no way to tell what earnings are going to be in 2020,” Hayes tells Fortune.

But while the actual bottom is anyone’s guess now, Goldman says three things will still need to happen before the market will truly trough.

A slowing of coronavirus spread

Top of mind for everyone on the Street remains the new coronavirus case count. While trends of slowing cases in China, South Korea, and Italy have given investors cause to be hopeful (Hayes notes that if the U.S. curve is like the China or Singapore case curve, “the market has likely already discounted most of the pain that’s going to be coming in coming months economically speaking”), Goldman maintains the uncertainty is going to continue making further multiple expansion unlikely.

Evidence that fiscal and monetary stimulus is actually working

An ample policy response from both the Fed and the government (with a $2.2 trillion stimulus package) is certainly reason to be optimistic, but Goldman still warns that “only time will tell to what extent the actions succeed in limiting defaults, closures, and layoffs.”

A bottoming in investor positioning and flows

Finally, the firm is looking to investor positioning and flows to signal if there is further downside ahead (checking to see if “selling pressure will slow and help stocks to bottom”). Goldman’s U.S. Equity Sentiment Indicator, which compiles nine measures of equity positioning, had only declined to –1.4 standard deviations, versus –2 to –3 standard deviation readings at the bottoms of other corrections this cycle. Last week, “the metric rose to –0.7, suggesting more selling lies ahead,” according to Goldman’s report.

But keep in mind…

Yet some are looking elsewhere to gauge where markets are most likely headed, and those like Hayes and Morgan Stanley are a bit more optimistic they could have bottomed already.

Morgan Stanley is taking note of the situation on the corporate earnings side. Citi Global Earnings Revisions Index recorded its worst reading in 20 years, the firm noted, which “is important, as it suggests the bad news is priced into markets, exemplified by the fact that [last] week’s [3.28 million] unemployment claims made no dent in market confidence. Stocks rose on the day of that report,” strategists wrote in a Morgan Stanley Wealth Management Global Investment Committee note on Monday.

That latter point of stocks being unperturbed by the bad news is precisely what Great Hill’s Hayes is watching: “The news will continue to be worse, but as the market starts to show strength on bad news, that’s when you can start to consider that we’re at a turning point,” Hayes contends. “That means the market has probably discounted a lot of the worst case already.”