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Will the Stock Market Rally Continue?

Posted by: Michael Mandel on March 26

I just wrote a new story for the magazine, suggesting that we are nearing a bottom for the market. Here’s the top of the story:

Predicting the stock market is a dicey game. Back in October 2008, when the Standard & Poor’s 500-stock index was at 940, I announced on my blog Economics Unbound that I was moving some money back into equities. At the time, I wrote: “Even if the market and the economy keep going down for a while (including today!), this strikes me as a good time to invest.”

After that ill-fated post, the market went into a tailspin, hitting a closing low of 677 on Mar. 9. Stock prices, adjusted for inflation, fell back to 1995 levels, wiping out almost 15 years of gains. Many investors wondered why they even bothered.

But now, with stock prices up 20% since the low, I’m ready to take another shot at calling the bottom. The reasons for muted optimism: better policy, small signs of economic revival, and a sense that we already have absorbed a punch of historic proportions. The downside: stubbornly high unemployment.

I should say that despite my ‘muted optimism’, I’m *not* adjusting my portfolio towards equities at the moment. I have one kid in college and another about to go, so I don’t want to be overly exposed for the next couple of years.

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Reader Comments


March 26, 2009 09:48 AM

These things are very difficult, if not impossible, to prove with hard evidence. But my feel is that you're right: that most of the pain of the economy is priced in, along with a healthy dose of fear. There's still a fair amount of consolidation potential, so you have to tread carefully. But for any company whose existence isn't directly threatened, it's probably a reasonable time to buy.

Brandon W

March 26, 2009 03:03 PM

U-6 is skyrocketing even more rapidly than U-3. I'm starting to believe that part-time employment may become more widespread (a problem for those wanting health insurance; but that's another discussion). We'll come through the banking crisis by bluffing our way out of it. It remains to be seen how the economy re-normalizes with many, many more people working part-time who would have been in full-time jobs 10 years ago.


March 26, 2009 06:20 PM

I trade technically. The market is going higher at the moment because fund managers don't want to be left out.
The last couple of days have been interesting; Geithner's unveiling of the plan killed that folks that were bearish.

The normal pattern was to expect the market to pull back after hitting 800 and consolidate. Instead, the market appears to like the changes and is definitely holding strong.

If we break below 790-800 with good volume, its sure sign that we'll pull back, possible to test the Mar. low.

No one can call the bottom. Watching Kudlow on CNBC is like watching a circus. They tried calling the bottom 3-4 times and folks lost money. You just have to know how to interpret what the market is telling you and manage your risk (this is very key).

Economy wise, nothing has changed. Its still bad out there. The plans are crazy, trillion dollar spending sprees that make me fear for the eventual outcome. But the stock market and the economy are not always in sync. Trade with what the market gives you, not what you think.


March 26, 2009 08:08 PM

You bought in at the right time. Equities were undervalued and you couldn't predict that speculators would overreact and sell off by another third. Now's a great time to buy more, if you have the extra money. Volatility is the markets' way of getting rid of idiots and it's working great right now. Smart investors like Buffett are going on a buying spree. Using average returns after past crises as you did is a form of astrology if you don't draw any parallels between the actual issues that caused those crises. But as CT shows, astrology is alive and well.


March 27, 2009 02:07 AM

Ajay, its not astrology. I have an MBA and am doing the CFA so I'm an academic. This astrology? Saved my life savings. I got out of the market at the peak.

There's a difference between valuation and technical analysis. Valuation tells us what equities we need to look at; technical analysis tells us what to buy. I would guess that almost all the fast money/professional money managers have some technical analysis approach.

Getting upset with the crash is one thing; never get too bearish or you'll miss the recovery. That said, never get too bullish or you'll catch the falling knife.

Call it astrology. Stay out while others make the money. Your choice.


March 27, 2009 05:53 AM

We certainly live in interesting times. Probably only territory for day traders. It is possible that some of the people with "cash on the sidelines" at the moment are being spooked by the stuff that's being done to the currency. The other dynamic (probably more likely) is that the well-connected are taking opportunities to snaffle some of the cash that the government is "burleying" the market with (a fishing term involving the tactic of throwing some old prawn heads in the water to attract fish to your fishing spot).

I haven't read anyone who is suggesting the fundamentals have somehow changed and the US consumer is ready to shoulder the load again. For a good dose of reality I recommend Dr Housing Bubble.


March 27, 2009 10:13 AM

If you're an individual investor, the stock market is essentially the same as the market for something like baseball cards.
So if you want to make money, trading technically isn't the only way to go, or even the best way to go. Read the mood of the traders and you can find the inflection points, something a reasonable P/E analysis simply won't tell you.
Of course, if you're going to buy and hold, you don't need to know the inflection points, and then a technical analysis makes sense.

The Mad Hedge Fund Trader, San Francisco, CA

March 27, 2009 12:19 PM

Perhaps. The quality of this rally is convincing some investors that this could be the big one. After financials (XLF), which are having an obvious dead cat bounce, the leaders of the past week have been the sectors that led into this recession, like consumer discretionaries (XLY), retailers (RLX), and home builders (HGX). The chart of Home Depot (HD) tells the whole story. These are exactly the sectors you would expect to move in a new bull


March 27, 2009 05:33 PM

I' m looking for the real economy.
China is mature enough to become the global provider of cheap products of acceptable quality. Its growth will continue and will steal slices from the others.
The West as a whole has only one single option to survive : to do what China and India cannot do. The US has more chances than the slow moving Europe. The process will be very slow anyway.
As for the stock market, let's not be carried away by enthusiasm. New regulatory systems may create credibility but not wealth. Offering incentives to private funds to buy toxic assets from the banks, is just a shift of the problem not a solution. Putting the Fed to buy bonds is a zero sum game : printing paper with the photo of an ex-president on it is no real added value.
I will admit to trading as an addiction. But I will not fool myself. If I' m good enough to synchronize myself with the prevailing mood, that's fine. Reading the others' cues makes poker the most interesting game. But it is only part of the game. The odds is the core of the game and it is an objective measure of the next best move, just like the real economy.


March 27, 2009 06:48 PM

Sorry, a bit off topic but I couldn't help sharing this headline from Bloomberg:
"Obama Seeks JPMorgan, Goldman, Citigroup Support on Bank Plan".
It's like the mayor seeking the help of Bad Bart to help restore order in the town. These organisations, and a few others internationally, need to be ring fenced and imploded so the real recovery can start. (I use ring fenced deliberately - it's normally used to describe protecting assets from taxation - in this case its protecting the taxes from the assets)

Joe Cushing

March 28, 2009 12:02 AM

At 940, it WAS a good time to move some money in. Nobody could know how much lower it would go. If you don't have room to move more in now, maybe you moved too fast. A better approach might have been to spread the move out over a period of time. 6 months? a year? 18 months? Who knows? My disposable income has been going into debt reduction. If I had more, I'd slowly put it into equities.


March 28, 2009 06:26 AM

Reading others peoples' cues makes poker the most interesting game. But it is only part of the game. It is the odds that is the core of the game and the odds are an objective predictive metric of the next best move, just like the real economy.
I love having my wallet full of freshly circulated pieces of papers bearing the photo of an ex-President on them. I love knowing that the Bank I do business with has dumped its toxic assets on somebody else with the distorting help of the goverment. I fell safer knowing that "my" Bank is under strict regulatory supervision although my account's balance will not change at all. But I do know, that all the above, is not about the odds of the game.


March 30, 2009 10:42 AM


It's true that core value matters. I'm just saying I could make a fair bit of pocket-change day trading my company's stock: not because of inside information, but because I'm familiar enough with the patterns to pick the inflection points out of the noise. I don't have a day-trader account, but I already probably grab around $1K a year gaming the sale dates on my grants before I roll most of the cash into my and my wife's IRAs.

Thomas Esmond Knox

August 10, 2009 08:40 PM

And for your penance, re-read "The Folly of Stock Market Timing" RH Jeffrey, Harvard Business Review, July 1984.

Thank you for your interest. This blog is no longer active.



Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.

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