It's Starting to Look a Lot Like November

lucky2009

The recent stock-market rally is turning heads. Why, there hasn't been anything like it since at least...November. The Dow Jones Industrial Average has bounced 22.5% in 19 trading days, the best such stretch since 1938. The broader S&P 500 has jumped 24.5% during that time. Amid the cheer it is easy to forget that the short-lived bounce off the market's November 2008 bottom was nearly as strong as this one. Until this past Thursday, November's rally was bigger, with the S&P 500 up 21% in 17 days, compared with 20% for the current bounce. The earlier surge carried through to early January, but then fell off a cliff to hit 12-year lows. Why might this time be different? For one thing, the November rally was based on flimsier stuff. It was sparked by the announcement that Timothy Geithner would be then-President-elect Barack Obama's Treasury secretary, a choice that pleased Wall Street, at least for a while. It was helped along by other government actions, including a massive Citigroup bailout and talks about keeping auto makers from bankruptcy. The government's approaches to those problems are dramatically different now. The economy was also in a deeper hole during that bounce, which included some of the absolute worst days for auto sales, industrial production and consumer spending, among other things, during this recession. Since then all three, along with housing data, have shown signs they are no longer falling into the abyss. But this rally's scaffolding includes wishful thinking, too. It was launched by word that some big banks were profitable in January and February. Two months do not a quarter make, and banks indicated conditions got tougher in March. Stocks got another hand from the Financial Accounting Standards Board, which relaxed mark-to-market accounting rules just in time to boost first-quarter bank results. But the move risks obscuring these banks' true worth, something that should make investors think twice. This rally was also perpetuated by talk of a revival of the uptick rule mandating that short-sellers can't short a stock unless its price is rising. But years of research have produced little evidence to support the idea that the rule helps avoid sharp swoons, and last year's experiment in banishing shorts did not stop a market collapse. The most credible drivers of this rally are hints of an economic bottom. But even these tell of a bottoming at a very low level, not necessarily a quick recovery. Weekly jobless claims are still rising. The Baltic Dry index of global shipping costs, has fallen for the past 18 days and is off nearly 35% from its high of the year. Investment-grade corporate bond yields are still not much off their highs, a sign credit is still tight. For all its vigor, the Dow is still down 9% for the year and 43% from its record high. While this bounce might not mirror November's, it still has the hallmarks of a bear-market rally. Original Article is here: http://online.wsj.com/article/SB123897272610890931.html