Stocks Bull Market 2009?
Stock-Markets / Investing 2009 Mar 30, 2009 - 04:34 AM GMTWilliam Patalon III writes: Is it “Bull Market 2009?”
The answer to that question depends on whether you believe the three-week surge we've just been through is the start of a prolonged advance for U.S. stocks, or was just the kind of “ dead-cat bounce ” fake-out move that temporarily interrupts a protracted bear-market decline.
It's not an easy call to make, although all the stimulus, bailout and fix-up-plan money flowing into the U.S. financial system certainly makes a strong case for at least a near-term bull-market advance.
Let's look at some numbers.
The Standard & Poor's 500 Index last week gained ground for the third straight week, pushing it near its biggest monthly advance since 1991, with investors sparking a rally after deciding a government plan to eradicate toxic banking debt was actually well engineered.
“The market tends to respond when there's less uncertainty , and [the details of this plan] cleared up a little bit of the fogginess,” Craig Hodges, fund manager with Hodges Capital Management in Dallas, told Bloomberg News .
Noted Hodges: "People thought this was a pretty decent plan, especially compared to a lot of the other alternatives."
The S&P 500 closed Friday at 815.94 – gaining 6.2% for the week – and its 2.03% loss Friday was its only down day of the five. That broad U.S. stock index zoomed 7.1% last Monday, the fourth-biggest daily advance since the 1930s, and a rally that underscored investor backing for U.S. Treasury Secretary Timothy F. Geithner 's plan to draft private-sector investors to finance as much as $1 trillion in distressed bank assets.
Investors' speculation that government efforts to jump-start lending and end the recession caused the S&P to soar 21% from a 12-year nadir set March 9. That's the biggest 14-day rally since 1938, S&P analyst Howard Silverblatt told Bloomberg . A bull market is defined as an advance of 20% or more.
The advance has been broad-based, always an important consideration when attempting to determine whether a market move is a true bull surge, or just a bear-market head fake , Money Morning reported last week.
The Dow Jones Industrial Average rose 6.8% last week, closing at 7776.18. The tech-laden Nasdaq Composite Index advanced 6%.
With the Dow still down more than 40% from the record highs set in 2007, and the U.S. economy in a recession that's lasted more than a year, can investors really consider the recent rally as “bullish?” Again, that's a real possibility, since stocks tend to rebound ahead of the economy.
Market Matters
After announcing the basic details of the public/private venture early last week, Treasury Secretary Geithner added some details as the week moved along. PIMCO , the world's largest fixed income manager, revealed its intent to participate, and Morgan Stanley ( MS ) and others threw their support behind the program. Although some economists remain skeptical, investors liked what they heard and sent the Dow skyrocketing the day of the announcement. Geithner found that his image had been suddenly transformed from a stumbling and fumbling bureaucrat to something more akin to a rock star.
Riding his newfound popularity, he announced a plan to completely revamp the entire financial system, complete with an expanding oversight role for the Treasury Department and the Federal Deposit Insurance Corp. (FDIC), including stronger regulations for hedge funds and firms deemed “too big too fail.” U.S. President Barack Obama met with the nation's top banking executives to discuss the administration's proposals, the financial “stress tests” that will be initiated in April, and compensation/bonus issues that have raised the ire of the American people. Speaking of compensation (and public outrage), a financial publication reported that the Top 25 highest-paid hedge fund managers together earned $11.6 billion in 2008.
In non-financial news, Best Buy Co. Inc. ( BBY ) raised its outlook for annual profits; International Business Machines Corp. ( IBM ) laid the groundwork for future layoffs; and FedEx Corp. ( FDX ) decided against buying 30 new airplanes until the economy rebounds.
Market/ Index | Year Close (2008) |
Qtr Close (12/31/08) |
Previous Week |
Current Week |
YTD Change |
Dow Jones Industrial | 8,776.39 | 8,776.39 | 7,278.38 | 7,776.18 | -11.40% |
NASDAQ | 1,577.03 | 1,577.03 | 1,457.27 | 1,545.20 | -2.02% |
S&P 500 | 903.25 | 903.25 | 768.54 | 815.94 | -9.67% |
Russell 2000 | 499.45 | 499.45 | 400.11 | 429.00 | -14.11% |
Fed Funds | 0.25% | 0.25% | 0.25% | 0.25% | 0 bps |
10 yr Treasury (Yield) | 2.24% | 2.24% | 2.63% | 2.76% | +52 bps |
Economically Speaking
Most analysts believe the sector that started this whole economic mess eventually must lead the country back into recovery. Finally, a few signs have emerged that housing may just be on the mend. (Of course, it took a dramatic decline in property values and home prices for this renewed activity to occur.) In February, both existing home sales (+5.1%) and new homes sales (+4.7%) unexpectedly jumped as homebuyers took advantage of foreclosures and some bargain basement prices. Additionally, the economic stimulus package provides tax relief to eligible first-time homebuyers, and, undoubtedly, these sales numbers include more than a few folks who finally are able to achieve the American Dream.
Hopefully, the renewed activity will serve to benefit the economy as a whole in the current and future quarters, as the gross domestic product figures (GDP) 2008 were finally finalized. The U.S. Commerce Department downwardly revised the fourth quarter GDP again (-6.3%) , though some economists breathed a collective sigh of relief that the release was not worse. Personal income rose for the second month in a row, another positive development, especially since the mighty consumer contributes about two-thirds of the growth of the economy. Manufacturers also got some good news during the week as durable goods orders in February surprisingly soared 3.4%, breaking a six-month losing streak and offering purchasing managers a bit of encouragement.
In global news, Obama heads to London in the days to come to meet with his foreign counterparts and debate the ills of the world and how this can be fixed. Expect some “heated” (but civil) dialogue as various approaches are discussed (enhanced regulation vs. increased stimulus) to revive the global economy and as President Obama makes his case for the policies his administration has enacted.
Weekly Economic Calendar
Date | Release |
Comments |
March 23 | Existing Home Sales (02/09) | Surprising jump as buyers emerged at discounted prices |
March 25 | Durable Goods Orders (02/09) | Biggest rise in 14 months |
New Home Sales (02/09) | Unexpected surge in sales in February | |
March 26 | Initial Jobless Claims (03/21/09) | Continuing claims jumped for 10th consecutive week |
GDP – 4th qtr (final) | Another slight downward revision | |
March 27 | Personal income/Spending (02/09) | 2nd straight increase in spending, though income fell |
The Week Ahead | ||
March 31 | Consumer Confidence (03/09) | |
April 1 | Construction Spending (02/09) | |
ISM – Manu (03/09) | ||
April 2 | Initial Jobless Claims (03/28/09) | |
Factory Orders (02/09) | ||
April 3 | Unemployment Rate (03/09) | |
Nonfarm Payroll (03/09) | ||
ISM – Services (03/09) |
Money Morning/The Money Map Report
©2009 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com
Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.
Money Morning Archive |
© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.