Six-Month Anniversary of Stock Market Bottom Today
UPDATED at 4:45 p.m.
Today -- September 9 -- marks the six-month anniversary of the March 9 stock market bottom. It's been quite a ride up since then.
You may recall that most traders thought the market had bottomed in late November. After that, the three major indexes popped back up until February, when they fell off the table, blowing through the November bottom to trough on March 9.
Where have we come since then? Here are some stats:
Since March 9:
-- The blue-chip Dow is up 45 percent.
-- The broader S&P 500 is up 51 percent.
-- The tech-heavy Nasdaq is up 61 percent.
Some statistical breakdowns within the S&P 500:
-- 487 of the 500 stocks (or 97.4 percent) are trading higher.
-- 126 of the 500 stocks have at least doubled in price.
-- 39 of the 500 stocks have tripled in value.
The question now is: where do we go next?
First of all, historically, September is the worst trading month of the year. So we've got that going for us.
Most traders believe that if you have been sitting on the sidelines and waiting to get into the market, it's too late now. Unless, of course, you think stocks are going to rise another 50 percent in the next six months.
This six-month surge has been the payoff for traders and investors who stayed in the market on the way down, buying more stocks as they got cheaper and cheaper. (Check out your 401(k) since March; you'll see what we mean.)
We e-mailed Art Hogan, chief market strategist at Jefferies & Co. and asked: No one expects another 50-percent rally in the next six months, so what should we expect? Will the markets retest the March lows? And given that the market high -- Dow 14,000, hit in October 2007 -- was reached at least partly by highly leveraged earnings, most of which won't come back again, how long will it take to reach that level again?
"I agree that expectations in the short- to mid-term are not for significantly upside," Hogan wrote back. In fact, he said, the consensus is that the markets will go down 10 to 20 percent from this point through the end of October, though he is unsure what the "catalyst" will be to kick off the pullback.
On the upside, however, Hogan does not believe the March bottom -- the spooky 666 on the S&P 500 -- will be hit again. So that's good news. At least from a Mark Of the Beast point of view.
As for the markets hitting their high again, well, settle in for a long ride.
"I do think we will see markets and economy in slow growth mode over an extended period of time, which plays in to your last point," Hogan wrote, regarding the general deleveraging of the economy. "Eight percent annualized market growth will take us five years to get to [Dow] 14,400 from here."
In a research paper this morning, Lord Abbet senior economist Milton Ezrati said the massive debt and deficits being run up by this administration -- thanks to the stimulus and various bailouts and the desire to expand healthcare coverage -- will take their toll on the markets in the coming months.
Ezrati points out three problems:
-- Will foreigners (specifically China) keep wanting to buy U.S. debt?
-- The Fed needs to absorb some of the liquidity it has injected into the system.
-- The dollar may continue to drop.
But investors and citizens in this regard need immediate progress less than they need a credible plan to address deficit and debt issues over the longer run," Ezrati writes. "Without such a plan and Fed action to absorb excess liquidity, the currency, debt, and inflation problems about which people have expressed concern will become unavoidable and worse, markets will likely begin to anticipate them even before they fully develop."
CNBC has been trumpeting this six-month anniversary all morning because it was called back on March 9 by veteran anchor Mark Haines, who said he did so after consulting the 50-day moving averages. So there are a lot of cheeky references to the "Haines bottom" going on.
The Haines Bottom will get some testing from the weak economy in the coming months to find out if it's firm or flabby (sorry). For instance: The official unemployment stands at 9.7 percent, with most economists and the White House believing it will crest higher than 10 percent and perhaps remain at that level for many months. With high unemployment comes more home foreclosures and less consumer spending. (Already, we've seen Americans spending less and saving more and using their money to pay down debt.)
The Dow now sits at about 9,500, well off its October 2007 high of 14,000. There's a school of thinking that says it will take a looong time to get back to those levels because they were driven by highly leveraged earnings. Meaning: The big investment banks like Goldman Sachs pushed revenues and profits higher by running balance sheets with debt-to-equity ratios of 30 to 1 or higher.
Prior to this financial bubble, a 10-to-1 ratio was considered high. And, going forward, it probably will be again, which means the climb back up to Dow 14,000 will be shallow, not steep. Still, investors, who've seen 40 percent or more of their 401(k) evaporate during this crisis, would probably take a nice, slow, steady, boring climb in the markets.
-- Frank Ahrens
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September 9, 2009; 4:45 PM ET
Categories: The Ticker | Tags: Dow Jones, Goldman Sachs, Haines bottom, Mark Haines, nasdaq, s&p 500
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