Tuesday, 27 December 2011

Stocks rally strongly, just like in middle of last bear market

Stock markets resumed their rallies last week.

In the United States, the Standard & Poor’s 500 Index rose 3.7 percent to 1,265.33 last week. The gain erased the year's decline and left the index 0.6 percent higher than at the beginning of 2011. It is now 7.2 percent below this year's peak on 29 April.

For the week, the STOXX Europe 600 rose 3.5 percent to 241.86. The index is now 12.6 percent above this year's low of 214.89 on 22 September. However, unlike the S&P 500, it remains in negative territory for the year as last week's close left it 12.3 percent lower than at the beginning of 2011. The index also remains 16.9 percent below this year's peak on 17 February.

Stock markets have made strong rallies from the lows set just a few months ago. This might be the typical year-end rally.

Or investors might simply be breathing a bit easier after the turmoil in the middle of the year. After all, there appears to have been some progress, albeit limited, among Europe's policy-makers to deal with its debt crisis. Economic data in recent weeks have also not shown much further deterioration among the major economies.

Still, the debt problem in Europe remains a major threat to markets and economies. Greece is still widely considered to be insolvent while Italy remains in distress, with its 10-year yield rising again last week to touch 7 percent.

And to put the recent rally in perspective, markets also made similar rallies in the middle of the last bear market in 2007-2009. However, they then collapsed dramatically about a year or more into the bear market when Lehman Brothers failed.

So the rally in stocks over the past few months does not necessarily mean that the correction is over.

No comments:

Post a comment