Reality check for the big bounce
Standard & Poor’s 500-stock index has doubled the fastest it has since the Great Depression. The market is rallying, but will it last?
I'm not sure what we'll call the now two-year-old and counting bull market when we look back on it. Lindzon calls it the "Inconceivable Rally". If it fails before making new highs and there is a decent retracement I'll vote for calling it "The Big Bounce" maybe.
The New York Times takes a look at the fact that even after the fastest doubling for the S&P 500 since the Depression, there are still many walking wounded from the last two boom-bust cycles for stocks...
For example, though most sectors of the Standard & Poor’s 500-stock index are now trading above their levels of March 2000, the overall index is still slightly below where it was then. And technology and telecommunications stocks — the market’s best performers leading up to the 2000-02 bear market — are still down around 60 percent, on average, from their peaks 11 years ago; blue-chip growth stocks are off about 35 percent.
What’s the moral of this story? Don’t count on a complete recovery anytime soon, said Sam Stovall, chief investment strategist at Standard & Poor’s Equity Research. “It could take 15 years for stocks to work off the effects of a major bubble,” he said.
When people ask where we are and whether or not "the rally is real" I try to take them one step back for the longer view. I explain that I believe we are in a cyclical bull market right now within a secular bear market that began in 2000. So yes, "the rally is real" but it may not be The Real Rally...if that makes any sense to you. I point to My Favorite Chart On Earth. I mention that we could be looking at 2016-2017 as far as when this secular bear ends. That timeframe would put it in line with the average lengths of previous secular bears.
Stovall points out a few prolonged recoveries away from the one we're currently zipping through. Working off hyper-valuations from a busted asset bubble takes time. Decades in some cases. This is a good reminder that although the indexes are getting the headlines, there are tons of stocks that are nowhere near the highs of the 2000 peak, let alone the 2007 one.
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