On the one hand, the rally that began after the March 9th low has only been around 5 weeks, but already it has wrought a powerful change in sentiment. There is big money on the sidelines hoping to recoup some losses. Some have no doubt been tempted to get back in.
On the other hand, it feels as though the rally has already begun to cool. Yes, the last few days have shown gains, but it feels like the winds are changing. Perhaps we'll see the market move sideways for a while, as it did today, ending flat (+5.90 or 0.07%).
The recession is just beginning. How will the market respond to further bad news? Has the market discounted all the bad news? Has the market already looked ahead?
I don't think so. The conventional wisdom is that the recession will last the year. My own view is that we are in for a 5 to 10 year recession.
An interesting possibility is how the market may respond to the inflation that is coming soon, once the deflationary pressures have abated. Will stocks leap ahead, encouraging investors that the bear market is over, a rally that is stimulated by inflation, not real underlying growth? That is a distinct possibility.
2 comments:
I agree with you that the market might not project ahead, or event absurd. But I am not agree that we are in for a 5-10 years recession. here is what i think, the stock market did flip alot of people, but the essential problem was not the stock market, it was the bad loan given out by the bank knowing that people will not be able to payback. so the new administration is doing it;s best to fix this problem, when loan system fixed, the money will be multiply, as Ben Bernanke said last month , we are expect to recover with in the early next year. I don't think we event need to change the federal reserve rate, since we've been use the same rate quite constant, it didn't and won;t make much different for the situation.
A recovery early in the next year? We'll see. As far as the Fed's projections go, I would not trust them. The Fed certainly did not warn us about the crisis until it was well underway. The Fed has been behind the curve so far. The Fed's projections are usually reliable during a boom (well, up until the end). During a recession or depression, the Fed's becomes more about propaganda than economics.
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