Bear market rally/Bull market beginning?

March 31, 2009

Another month and another Reuters asset allocation poll. This time saw investors in United States, Europe and Japan lifting their equity holdings and cutting back slightly on bonds.  Fits with what has been happening on global financial markets, where MSCI’s main world stock index is heading for its best month in at least six years.

So the big question is what happens now. Is this a bear market bounce that will soon dissipate?  Or is it the start of something bullish that will last?

13 comments

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Let’s assume that we have already seen the market bottom and that it occurred on March 9, 2009, when the S&P 500 sank to 676. A return to the lofty level of 1565 reached 18 months earlier requires a stock market gain of 131%. How much time might that take? What if it took five years? I can hear the cries already: “Five years? To recoup the losses we sustained in only 18 months? That’s terrible!”

We should be so lucky. You see, if we were to get back to the old high in five years, that would suggest an annual return of over 18% for that five year period. There are few periods in stock market history when the market rose 18% for five years. The last such period was in the late 1990s at the tail end of the Internet boom, which was followed by three years of consecutive stock market declines in 2000, 2001 and 2002. Given the history, a five-year recovery period, far from being terrible, is probably wishful thinking.

More realistically, what if, starting now, we began a munificent period of rising stock prices over a multiyear period of, say, 11% a year? If that happened, it would take eight years to get back to the October 2007 highs. To put all this in historical perspective, the average annual return for the S&P 500 over the past 83 years, since 1926, has been 9.7%. If the market rose at that historic rate, it would take more than nine years to get back to the October 2007 highs.

Posted by Gabriel Laera | Report as abusive

we all are “PROFIT” bulls, we personally feel that the sentiments around us clearly indicates we are entering in the new senario of bull market, current phase can be treated as consolidation. we all have seen very long bull market over the last eight years. we can see good recovery in all the markets world wide in upcoming one to two months.

Posted by Rahul Bhandawat | Report as abusive

Definitely a bull.

I think what we have is a bounce in the bear market but it has stopped the outright free fall we were experiencing. The unemployment and housing pictures have not shown any improvement. There is no reason of substance for the bounce that has just occurred. I believe we will see a meandering path for the S&P 500 over the next 10 months or so with a slight downward trend. Recovery will begin about this time next year (2010).

Posted by Darrell Hubbard | Report as abusive

till we have stability in something,government,taxes and banking. the market is going to be just fickled.

Posted by Richard | Report as abusive

Im sorry – but have you people lost your minds? how can anyone say we have reached a bottom, when we are in a totally unprecedented time right now. Nothing I see or hear tells me that markets are starting to behave in any normal or predictable way.

Hold on to your money, everyone the ride is not over yet…

Posted by Jason | Report as abusive

Under present conditions, we are seeing fewer “lower lows” from declining companies. There are even some companies returning higher than expected earnings. We will start to see earnings for the first quarter very soon. If these earnings continue to meet or exceed expectations, we can expect to have been at a bottom.

Since many stocks are selling well below their book values and with price to sales rations of well below 1.0, there is not too much additional down-side compared to the upside. If you feel reasonably comfortable about some companys’ survival, the upside is much higher than the downside.

I am presently 100% invested with common and preferred stocks in Energy, REIT’s and Financials.

Posted by Jonathan Christopher | Report as abusive

Nothing bullish nothing to be happy about. The current market turmoil has yet to subside. I tend to look at this positively the markets are now correcting themselves by revising downwards.
This cycle of bubble and bust however is what needs immediate attention.
We can no longer sustain prolonged periods whereby stock indices reach paramount heights only to tumble in a few years time.

Posted by George M. | Report as abusive

Definitely bullish, and have been for some time. Just look at the way metals have picked up this last quarter! The doom & gloom around Financials and Real Estate has tended to obscure the rocket-like advance of the miners since December. As a major weighting in the FTSE for one (where I invest), they can pretty well pull the index on their own, and I see them as a leading indicator of economic recovery.

Would say the same for commodities in general, for which prices have fallen close to or beyond extraction costs, making it more cost effective not to extract/refine at all, thereby curtailing supply. China, for one, has committed to vast infrastructure projects to stave off recession: where is it going to get its raw materials from? And isn’t the West likely to adopt a similar strategy in the attempt to fight rising unemployment?

I don’t know that we will see the same price levels as mid 2007 for a while; but those levels were driven purely by speculation, and a pullback was necessary. Maybe we won’t recover to those levels for years, but so what? That doesn’t mean that’s what’s happening right now isn’t a recovery. In fact, I feel a lot more confidence in the market just now than I did back then precisely because we are now well off those dizzy heights.

A.H

Posted by A.H | Report as abusive

Stabilisation leads to a return in confidence. The entire system is built on confidence – and that includes the notes in your wallet.
When the Banks have stabilised and are comfortable lending to businesses once more – then we will see an upturn. I believe it will be evident by September-October 2009.

Posted by Caseyjones | Report as abusive

The Stock Research Portal is mystified with the continuing economic optimism of the experts. Here’s how he sees the near future: “More Job Losses → Less Consumer Spending → No Change or Lower House Prices → Further Declining Consumer Confidence → Less Government Taxes Collected → Larger Government Deficits → Ongoing Recession (or worse).”

Via Stock Research Portal (http://www.stockresearchportal.com)

I don’t know how a bull market could get over all this bad information.

I think we’ve seen the lows, but it’s going to be a rough ride over the next few months.

I beg to differ. I am not very educated but it seems to me as President Obama stated early on that “the party is over”. Does anyone remember that? He meant there will be no return. The worldwide financial system is destined to fail as it nearly did last year. I am reluctant to agree that safeguards were put into place that can address the fundamental flaw that continues to exist in that the world is broke.

Posted by william | Report as abusive

[...] much the same way that analysts have been debating whether equities are in a bear market rally or a new bull market, economists now have to deal with the question of whether the global economy is just bottoming out [...]

[...] much the same way that analysts have been debating whether equities are in a bear market rally or a new bull market, economists now have to deal with the question of whether the global economy is just bottoming out [...]