Stocks: Waking the Slumbering Bull

Posted by: Ben Levisohn on February 13, 2009

Despite some attention getting jumps and slumps – like a 300 point drop following Treasury Secretary Geithner’s disclosure of the bank rescue plan on Feb. 10 — the stock market has essentially done nothing for the last two months. Since rallying from its lows on November 20, the Dow Jones has traded in a 1000 point range, while the S&P 500 has bounced between 800 and 925.

For the bulls out there, this is good news. They look at the constant stream of negative headlines – falling bank stocks, rising unemployment, cratering home prices – and see a market that could have, perhaps should have, fallen much, much further. “Citigroup traded $12 back in November when the market hit 7500,” says Robert Auer, manager of the Auer Growth Fund. “We’ve been able to cut bank shares in half again and the market isn’t any lower. It’s absorbed all the bad news.”

So what’s it going to take to get the market moving again? Auer sees a lot of “dry powder” sitting on the sideline, $3 trillion worth, actually. In normal times, a little over $1 trillion sits in money market funds. Now it’s around $4 trillion. That money is earning next to nothing, and as soon as the market starts to recover, it could flood back into stocks, Auer says.

Nor does it take a magician – or a Madoff – to turn $3 trillion into $10 trillion. On the way down, more market cap is lost than the actual dollar amount traded. For instance, on Feb. 13, JPMorgan Chase dropped nearly 6%, to close at $24.69 on light volume of 58.19 million shares. That means it took only $1.4 billion of investor money to shed $5.6 billion in market capitalization, a drop of $4 dollars for every one dollar traded.

But the same math works on the upside as well. That $3 trillion sitting in money market accounts, if invested in the stock market, could turn into $10 trillion in market gains. When that happens is anyone’s guess – Auer doesn’t have a time frame. But he is more than a little optimistic that the worst is over. “This was the worst ten years ever [for the stock market], even worse than the depression,” Auer says. “Now, we could be going into a glory decade.”

That’s a notion that shell-shocked investors may not share at the moment, but market rallies sometimes happen when you least expect them.

Reader Comments

PNW Trojan

February 13, 2009 11:22 PM

Hey! Did you miss the GREAT news? The 'stimulus' is going to give every worker, an extra $8-$9 a week in EXTRA income!! Should be more than enough for a bowl of watery gruel, sufficient to keep us alive, toiling for the Bankers and Hedge Fund folks in NYC and Greenwich, to say nothing of Blarney Frank and old Pelosi. Just image how much THEY GOT!!! Gee, can we get Gomer Bushwacker back? Nice work, Obama-mama! FEMA'd again!!!!!

Warren Shushi

February 15, 2009 10:41 AM

The assertion that stock price absorbed all the bad news can only be said of C, BAC, and other big financials. The market trades against fundamentals when it ignore news. And that may justify large amount of money sits on the sidelines.

Jaime Tan

February 16, 2009 2:44 PM

Everybody knows the market will recover.
When will it happen is the trillion dollar
question.

Stuart

February 17, 2009 4:02 AM

Whole world is facing the problem of Economic crisis now a day. Due to which stock market is going down and many persons have to left their jobs. Now the situation is that every department as well as industry is facing the problem of crisis. The growth rate is going down and if the situation remains for a long period of time then it can create problem for us.

Stuart
Business Opportunities

Steve

February 18, 2009 12:04 PM

Could be right- from the 90's, that investment cash cycled from stocks into real estate, then into commodities, now into bonds/cash- where next?- could be stocks again, but may take a while?
waiting for more clarity on P/E ratios?

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About

Bloomberg Businessweek’s Ben Steverman focuses on the latest moves in financial markets and emerging trends in stocks, bonds, and funds, always with an eye toward giving readers a better understanding of the sometimes confusing and often chaotic world of money. Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.

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