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jyc3 (76.51)

Market Update - Is the Bear Market Over?

Recs

4

April 16, 2009 – Comments (4) | RELATED TICKERS: SPY , EFA , FXI

Is the bear market over? Is the recession ending? Well, stocks have rallied off their lows in impressive fashion, the economic backdrop is improving, the Federal Reserve is buying every kind of asset imaginable and the consensus seems to be that this is nothing but another one of the sucker rallies we’ve experienced over the last six months. Put all that together and I’m pretty comfortable with the idea that stocks can continue to rise for a while longer.

One thing that a lot of the recent commentary ignores though is that while the Spring stock market rally has been nice, it still leaves the major averages down for the year.

See Chart.

The major international stock measure, the EAFE index, is also down for the year:

See Chart.

So, while this has been a nice few weeks, it does not a bull market make. There is probably room for the market to rally further and this may yet turn into a cyclical bull market if the economic stats continue to improve, but that’s a long way in the future. In the meantime, there is a lot that needs to go right for stocks to keep climbing.

The economy does seem to be stabilizing though and for that we can thank the Federal Reserve. Bernanke has thrown everything but the kitchen sink at this recession and while I abhor his methods and worry deeply about the long term implications, we are seeing results. Monetary policy works with a lag, but it is powerful stuff. The Fed has essentially taken over lending in large parts of the economy, adding roughly $1 trillion in assets to its balance sheet. It would be surprising only if that didn’t have any effect in the real economy.

With the Fed pushing down mortgage rates, the housing market seems to finally be finding a bottom, at least in terms of sales if not price. Home sales in CA and FL have been rising for 6 months. Nationwide, the housing affordability index is at an all time high (most affordable). A lot of commentators have derided the sales numbers by saying that they are mostly distressed sales, but to me that is irrelevant. The inventory needs to be cleared and the quickest way to do that is through lower prices. That is how this supply/demand thing works after all. Housing starts, existing home sales, new home sales and pending home sales have all seen recent improvement.

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4 Comments – Post Your Own

#1) On April 16, 2009 at 9:51 AM, jmperez87 (88.13) wrote:

very insightful and in-depth...thanks jyc3

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#2) On April 16, 2009 at 10:45 AM, EHoyle80 (< 20) wrote:

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

 

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#3) On April 16, 2009 at 11:01 AM, Londamania (66.76) wrote:

Yes it's over.  You can count three bottoms starting last fall why people keep expecting a 4th is beyond me.  I made a 10% return on my investment portfolio LAST WEEK. I have some investments made near the March bottom that I am sitting on returns of 50% and 80% (god bless GE) in ONE MONTH. 

The bottom went in and if people don't see that they are missing the train.  Expect us to glide up to SP900-910 area before May and then it's a long L from there out to next year (minimum) where Infrastructure Cyclicals (Materials/Industrials), Strong Financials, and Good Tech will lead performers.  Divies will be key the market will be largely flat once we settle at some nominal value point.

The bad news is all priced in...bad news bounces off the market, good news pushes it higher.  Today is a perfect example.

That trade feels real nervous and dangerous and hard right now with everyone expecting a big pullback.  And that's why it is a trade that can net you the most money.  Right now at this momement I am half in and half out waiting to see if we dip down and if so I will be right back in.  I think the companies I am buying have been given a license to print money so even if we have a steep pullback I am confident my selections will recover it soon enough.  Beating your earnings brings a high stock price no matter what else is going on.

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#4) On April 16, 2009 at 11:33 AM, Gemini846 (90.59) wrote:

Londamania has good advice. There are basically 3 kinds of reactions to the last rally.

1) Whew glad I bougth in. If we have a dip I can sell and still made some money.
2) Dang it I didn't get in, but I'm getting in now cause this was the bottom.
3) I missed this rally, but I'll have another opportunity later.

I think there is no real danger of buying now on small dips IF you are careful to aggressivly manage your downside risk. IE don't loose money.

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