August 31, 2010: Bracing for Fall (the season, that is)
August 31st, 2010
We live in an age in which anyone with a computer can write articles that span the world with the push of the “enter” key. The investment world has always operated with and as a result of mountains of information; even when that information did not flow all that fast. Completely open flow of ideas and opinions is a great thing for a mature, thinking society.
A recent pair of opinion articles really caught my eye.
On August 28, MarketWatch ran an opinion piece called, “The Death of Equities, Part 2?” which was an opinion on the opinion piece from the New York Times on August 27 in which the author reflected upon a 1979 Business Week cover story called (not-surprisingly), “The Death of Equities”.
The NYT article, in a cursory fashion, discussed some of the fears investors were facing in 1979 such as: economic uncertainty, acute indecision in the market which showed itself through hyper-volatility, geo-political worries, and a seemingly non-stop exodus of money from the market. After reminding the reader that it was “only” three years until THE market bottom was established, the article ended with an ominous warning for anyone who has been selling as of late. “It would be a sad twist if people were to mirror their recent excessive risk-taking with excessive caution now”.
The MarketWatch opinion piece had a fascinating comment as it basically said the same thing as the NYT piece in that a warning was issued for anyone who has been bearish or skeptical on the prospects of the next trend phase for the market. This piece ended with the following: “Is there a new bull-market ahead? Who knows? But articles like the front-page story in last Sunday’s Times (Aug 27 article) are one sign we may be much closer to the end of this long bear market than the beginning.”
The Major Averages (Dow 30, S&P 400, 500, and 600, NASDAQ 100, and Russell 2000) are 55% to 81% above their respective bear market lows from 2008-2009. The S&P Financials is the only sector index to be officially in bear market territory (down 21.5% from its recent peak). Even still, the index is up 131% from its bear market low.
Comparing 2007’s peaks (all-time highs for three of the four Averages) to 2010’s recovery highs reveals some interesting technical data points. The recovery highs for the Dow 30 and S&P 500 were below bear market thresholds relative to 2007’s highs. The Naz 100 and Russell 2000 blasted right up through their bear market thresholds and came within 8% and 12.9%, respectively, of their 2007 highs before reversing lower. If the “long bear market” comment was in relation to 2007’s all-time highs, then I would agree…we are in a long bear market. But looking at the returns from 2008’s-2009’s lows, it seems that “the market” has priced in a superb recovery and on-going good economic and corporate news.
Bear? Bull? It truly depends on your perspective. However, with the major averages down 20%-33% from 2007’s bull peaks but also up 55%-80% from their recent bear market lows, the broad market could be closer to an important top than it is to an exasperated market bottom.
**************************************************************