Since hitting its low on March 9, the S&P 500 Index has rallied 51.9% going into today – an unprecedented annualized rate just north of 110%. What’s even more amazing about the bullish action in the markets is that it’s taking place during a prolonged recessionary period with high unemployment that continues to dance with a double-digit rate.
However, the S&P 500 is not alone. Other cap-weighted indices have also posted remarkable gains for the same time period: The FTSE 100 is up 39%, and the Hang Seng has rallied an astonishing 80% since March 9.
All of this poses a wonderful question: Is it too late to jump in and make money? According to the recent surge in economic data and sentiment readings, the answer is no. There are still abundant opportunities to make money and take advantage of current conditions.
As pundits and strategists continue to pose concern after concern that the markets are destined for a sell-off and Global Depression II is just around the corner, sidelined investors will second-guess themselves and not resolve to their own personal sentiment that this bull market is for real.
“We’re looking at a bull cycle in phase one,” Laszlo Birinyi said in a telephone interview yesterday with Bloomberg. Birinyi was the top-ranked Dow Jones Industrial Average forecaster for most of the 1990s on PBS’s Wall Street Week with Louis Rukeyser. “No one wants to come out and say, ‘This is a bull market.’ Everyone’s just dancing around the term,” he said.
Another reason for optimism is the repair of the household balance sheet. Approximately $4 trillion has been recovered in equity valuations since the March low, and TransUnion reported today that balances on household credit cards declined by 1% month-over-month. The final two pieces for full economic recovery will be jobs and consumer spending.
But not all economists are sold on this economic recovery. Richard Yamarone, director of Economic Research at New York-based Argus, reports that total bankruptcy filings surged by 15.3% in the second quarter – considerably higher than the increases of 9.7%, 2.1% and 5.7% registered in the previous three quarters. The uptick in filings is most likely a direct result of the high unemployment figures; if the jobs outlook doesn’t improve soon, bankruptcy filings are certain to rise.
The argument to counter Mr. Yamarone, however, is the piles of cash being held in money market funds. According to data from the Investment Company Institute, there is $3.6 trillion sitting in U.S. money market funds, down from nearly $4 trillion held in March, but much more than the $3.2 trillion held at the start of 2008.
And, according to Kiplinger’s, the average taxable money market is now yielding a benign 0.08%. With a return this low, it’s hard to believe risk will not reenter the stock market and undoubtedly force investors back into equities, thus pushing values even higher.
Mix in higher GDP rate forecasts for 2010 in the United States and around the globe, and the markets are laying a foundation of extreme growth. As the risk appetite for investors continues to grow, look for this bull market to continue on its tear – not just for the rest of 2009, but well into 2010.
Other Articles Related To This Topic:
