June 1st, 2009
09:44 AM GMT
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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?



soundoff (16 Responses)
  1. midegdia@hot

    I think its a dead black cat bounce.

    No one cause of this crisis have been removed up to now.

    Only extra money have been printed out.

    June 1, 2009 at 2:43 pm |
  2. MohammadSH

    I think that the recent run since the March lows are a correction from the unreasonable lows that the markets reached back then out of investor "panic". I think once the Dow reaches 9000, we'll see a little bit of seasawing between the 8000 – 10000 range, possibly till around Q1 2010. After that, we'll start seeing the slow steady and recovery.

    June 1, 2009 at 4:15 pm |
  3. harry

    stocks are to cheap 25% up and then it will stabilise

    June 1, 2009 at 5:21 pm |
  4. Ken Sanders, Vancouver, Canada

    Now how would I know the answer to that one ? However I THINK it is a bear trap. People WANT to gamble. So those who run the 'game' that is called The Stock Market encourage them to come back in ( and get clipped again ). Nothing has changed. The money is all 'OUT'. New money is still being created plus interest with nothing backing it. Another collapse is inevitable. WHERE are all those new jobs ?? Without big job creation there can't be a recovery. Thank you.

    June 1, 2009 at 5:38 pm |
  5. financer

    Even with IMF's conservative estimates the financial loses from mortgages and mortgage backed securities will reach $4.1 Trillion. This will continue to cripple the credit markets. Besides, eastern european countries will continue to suffer from bad mortgages and some of them might get into serious financial crisis. Don't forget, many banks in eastern europe are owned by western european banks. So they will be affected too.

    The economies are still contracting in the world. May be slower but they are still contracting. This means more job losses. Americans are losing around 500K jobs every month. Add to this the fact that the wages are not increasing at all, there will be serious drop in consumption for a long time.

    I think the fact that companies started producing nowadays is because of lack of inventory. They sold what they have especially because of stimulus packages and now they are building up inventory again. When that is complete, the sluggish times will come back.

    June 1, 2009 at 9:43 pm |
  6. dan in Tucson

    Personally I don't trust Wall street at all. Never will again. The greed is way out of control and it would not surprise me for them to once again trick people into thinking this is a safe place to put your money. People need to wise up and wait for the regulations to be put back into place before trusting them again. If you lose money in the stock market knowing what it is, you deserve it.

    June 2, 2009 at 1:11 pm |
  7. salemh

    I think the fundamentals all over the world are improving gradually, and investors have an increasing appetite to invest again, and let us not forget that equity prices should reflect future economic fundamentals and earnings, and most economist expect that the majority of the Globe will return to positive GDP growth in 2010, and let us not completley ignore the wealth effect, as people's investment grow in value they will spend more, the unemployment picture will stablize in 2010, as companies that downsized heavily in 2008/2009 will have to rehire gradually.

    June 2, 2009 at 4:50 pm |
  8. Scott

    I would like to agree with MohammadSH. The previous lows were unreasonable. Being someone who got out and into Gov Securities when the DJIA was at about 12500 and who re-diversified when it was at 6800 and has enjoyed the ride the past few months, I may be kidding myself. But, there is still too much potential and I agree, we stay between 8000 and 10K on the DJIA for a while and then start a slow growth not getting back to the previous highs for a couple of years. Afterall, (understanding nothing is forever sustainable), if this had not happened, we would probably be upwards of 15000 to maybe 20K on the DJIA?? So even at 10K, we are probably 25% to 50% below what it-cud-of-been or should-of-been? I'm a "U" fan but there is a lot of human emotion and definitely some TMI that plays into it on a day-to-day basis. Probably a crap-shoot. Along for the ride. Interesting times.

    June 2, 2009 at 11:31 pm |
  9. Robert

    The current administration's monetary policy has all but guaranteed soaring interest rates, the deficit is 4 times any previous year in American history, the printing presses are churning out greenbacks like there's no tomorrow, foreigners are shying away from treasuries which is what's driving the printing presses, unemployment is at a 25 year high and climbing albiet at a now slower pace, bankruptcies are a daily event, and the second wave of ARM defaults (Alt-A and Option) are just starting and will last for 12 to 18 months. We have already beggared our children for the next couple of generations and the "Forth Turning" is just getting started. Is the recent rally just a bear market trap? Absolutely. And there will no doubt be a few more before the dust finally settles..

    June 5, 2009 at 8:14 pm |
  10. John

    It seems that the vast majority of people are still too eager to take on excessive risk. There isn't enough patience demonstrated yet for this rally to be anything but a trap.

    June 6, 2009 at 5:25 am |
  11. Will

    Obviously no one knows and of course us layman "investors" are handicapped to the extreme, always the fodor for this wicked financial dragon that we are now trying to deal with. From all that is being fed to us via the gurus of Mecca as to the ying and yang of the market movements, and then the coed goverment cheerleading squad pontificating as to the wonderful world according to the White House Shake and Bake team. How are we to know where the truth really "lies" ! ( pun intended ) So using historical patterns (as good as any reasonable guide ) one could use prior financial calamities as a template to the current market condtions and come to conclusion that it is highly unlikely that this market can go straight to the moon. I am postioniing my portfolio in the belief that there will be a 20 %correction in the near future . ( Christ ! I 'm starting to sound like one of them. ) You have to pick a path through this mine field and truly believe in it. We obviouslsy can't get any OBJECTIVITY from the press or the current powers that be as to what is truly underlying this overwhelming mess that has finally floated to the top of "pile" !

    June 7, 2009 at 11:36 pm |
  12. Vikramjit Singh

    I'll take the Indian Market as an example, because the rise is phenomenal here. The momentum is because of the sentiment.

    For Infrastructure investments to materialize it will take at least one and half year. The woefully slow process of Indian's tendering system is well known. And the 2000 point rise after the election has factored in all the god news.

    All of a sudden FII's have pumped in $ 3 Billion into the Indian Market. And the Indian Rupee has risen from 50 to 47.20. So when they start pulling out again they would benefit from the appreciation in the Dollar. After the 2000 point rise because of the positive election result not the Indian Market is rising because of hot money from Hedge Funds.

    My feeling is that for the next 2 years the World economy will go from bubble to bubble.

    June 10, 2009 at 9:38 am |
  13. Manuel Vilhena

    Very interesting article. I am optimistic. Time will tell.

    Looking forward to reading more articles. Manuel

    June 14, 2009 at 8:52 pm |
  14. tommk

    it seems that we lost trillions and somehow the greedy wall street idiots think that we don't have to experience some pain. once the losses are truly absorbed by everyone will can move on. that is some time away. the stock market bouncing back really just underlines that wall street is run by people who just believe that stocks can go only one way – up.

    June 14, 2009 at 9:31 pm |
  15. Bob Oldham

    I believe I have come up with away to trun the economey around. The problem is that everyone is being force to work shorter hours so why not get everyone to take the same time off. What I mean is this country should go to a 32 hour work week Monday thru Thursday. Even if this was made temperary lets say for the last six months of 2009. Now think about it everyone would have the same three day weekend thats a lot of people that would make special plans every weekend and when people make plans to do something they will spend MONEY! Lets fly or lets drive somewere we have three days before we go back to work. Yes we have to go back to work but I bet that everyone would become more productive so they would get 40 hous done in 32 hours and have another three day week end. That extra day every weekend would mean that our stores would get busier and our airlines would get busier and we would buy more gas. Now lets look at the savings business would save in power by having a four day work week. Think about it and lets get it done.

    June 26, 2009 at 5:27 pm |
  16. Sam

    I called the bottom of the FTSE at 4,500 well over a yer ago, it managed to stop just above but there is a long way for it to go before it , or if it fully recovers. This is something we have not really seen before so no one actually knows. I am still investing on a "Pound Cost Averaging" basis, but although I haven't given up entirely on some funds in the U.K. My feeling are that the BRIC's are the future. Volatile, sure but over the lon run probably will produce the best results.
    Civilization rally started in China and as the World goes round so does economies, I think it is China who will be the number 1 power in no more than 10 years with India closely behind. After all it has been prove that their brains are better than those in the West.

    July 8, 2009 at 1:15 am |

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