Wednesday, March 9, 2011

Happy 2 Year Anniversary Bull Market

Today marks the 2 year anniversary of the March 9, 2009 bottom.  As noted before this has been a historic rally [Feb 2, 2011: Dow's Rally of 2009-2011 is Most Aggressive Since 1930s] but of course follows one of the biggest crashes in history as well.  While quite a few have been suspicious of how this market acts, and indeed how it rallied so incredibly with massive net outflows for much of the past 2 years [Jan 6, 2010: Charles Biderman of TrimTabs Claims U.S. Government Supporting Stock Market], in retrospect President Obama literally called this rally to the week (March 3rd) when in a nearly unprecedented moment he said to buy stocks. [Mar 3, 2009: Barrack - Buy Stocks]  While surreal at the time, for future use, when the sitting president (and head honcho on the plunge protection team) tells everyone it's time to buy stocks, I will take the hint. (wink wink)  [Jan 9, 2008: An Amazingly Blunt Commentary on the Plunge Protection Team]

According to this Bloomberg story, $12 TRILLION has been pumped into the financial system by governments and central banks - that's simply astounding.  It's almost equivalent to a full year of GDP by the world's largest economy.


I did a review of what FMMF was saying the previous week (March 1-7, 2009), and what the atmosphere was like.  [Aug 2009: March 6, 2009 - Generational Bottom? What was FMMF Saying]  While Monday the 9th was the "closing price" bottom, the intraday bottom actually came the previous Friday at S&P 666 (oooh, spooky).  I remember things were so sour, I actually did a post with nothing but positive "feel good" videos in it.   Of course as we all know, Cramer called the bottom - ahem, as the video shows below.   (Cramer was saying to get out, as Obama was saying to get in)  Funny for a guy who attacks the Roubinis of the world for being too negative at the bottom ;)  (I am sure if you ask him, he will tell you he changed his mind days later once Doug Kass convinced him to go long)

USA Today is out this morning with a piece on the 2 year bull, aided and abetted in no small part by historical non traditional forces.  One amazing statistic I had not know was that the 3rd year of a presidential term has not been negative since 1939.  This is generally the time the president tries to juice the economy to win re-election, so maybe we've always had a form of 'goosing the market' - it is just much more explicit nowadays.
  • The raging bull market in stocks — born at the depths of the most severe financial crisis since the Great Depression — turns 2 today. In stock market years, that means the bull is entering middle age and its future is more uncertain.
  • If history is a guide, the bull will show a touch of gray, produce more muted returns and have a less clear vision of its future as it ages.  Still, barring an oil shock that would keep oil prices above $100 per barrel for an extended period, and other bull market killers such as a sharp jump in interest rates or inflation, or a political meltdown in the Middle East, the consensus is that the bull will still be alive a year from now.
  • Year three of the presidential cycle is the most bullish for stocks. There hasn't been a down year in the third year of a presidential term "since war-torn 1939," according to the Stock Trader's Almanac 2011.  "Typically, each administration does everything in its power to juice up the economy so that voters are in a positive mood at election time," the Almanac says.

Bulls' run, historically

Bull market returns, on average, for S&P 500:
  Current bull
Year 1
Year 2
Year 3
Source: Standard & Poor's

  • Still, some worry that with the Fed's latest round of asset purchases set to end in June, and the higher concentration of conservative politicians at the national, state and local levels slashing spending, the economy's "sugar high" could end and growth could slow. 
  • "I do not believe this is a normal cycle," Ned Davis of Ned Davis Research wrote to clients. "It has been built on powerful government and Fed stimulus drugs. I fear that the withdrawal of these stimulus drugs could lead to a sharp slowdown in growth. I am watching for signs that my fears are justified."  (obviously we share views with Ned Davis)
  • .....The key, says Yardeni, is for the recovery to be sustainable and for the economy to be able to "walk on its own" and not be driven solely by government policies.

And via Bloomberg
  • Even after almost doubling in 24 months, the S&P 500’s two- year return is 36 percentage points below the average bull- market gain of 131 percent since 1962, according to data compiled by Bloomberg and Birinyi Associates. 
  • The 730-day rally without a decline of 20 percent or more compares with an average duration of 1,407 days, the data show.

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