June 1st, 2009
09:44 AM GMT
LONDON, England - The stock market rally off the March lows, has been nothing short of spectacular.
The FTSE All World Index has shot up more than 60 percent. At several conferences I've attended, the majority of those I've asked, seem skeptical that the rally can be sustained, and for many they wouldn't be surprised if the market retests its lows.
Some don't believe it will, that the forced selling by hedge funds and others is past. But a Barclays Capital survey shows that six out of 10 respondents think the current rally is a "bear market rally." The survey includes asset managers, international corporate customers, hedge funds, and central banks.
Furthermore, fewer than five percent of those surveyed believe there will be a "V-shaped" recovery over the next year. That is, a sharp downturn followed by a sharp rebound in economic activity.
The majority - nearly 70 percent - think either you get a "W-shaped" recovery, that is a temporary rebound followed by weakness, or a "U-shaped" recovery, which means growth remains anemic for sometime before you get a gradual recovery.
As I mentioned in my last blog, many of those I speak with believe a sustained recovery is at least 18 months or further away. The Barclay's Capital survey would seem to reinforce this view.
Any sharp set back in the market would of course be damaging to consumer confidence, further undermining the timing of any economic recovery.
The bulls will argue that markets always anticipate recovery. But what the professionals in the Barclay's survey, and my own informal polling suggest, is that this rally may be ahead of itself.
What do you think - is this rally a bear market trap?
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