Investors see recovery year after Wall Street carnage
September 12, 2009
By Germain Moyon
New York - A year after the Wall Street calamity that battered the financial system and dragged the global economy into recession, investors appear to have regained their composure and are betting on recovery.
The main US indexes nearly recovered most of the losses that followed the panicked events of last September, which froze up financial markets and kept stocks on a downward track until March.
"Investors are increasingly convinced that a sustainable global recovery is emerging out of the wreckage," said Albert Edwards, analyst at Societe Generale.
Over the week to Friday, the Dow Jones Industrial Average climbed 1.74 percent to 9 605.41, after touching an 11-month high earlier in the week.
The tech-heavy Nasdaq composite rallied 3.08 percent to 2,080.90 and the broad-market Standard & Poor's 500 index jumped 2.59 percent to 1 042.73.
Despite the latest rebound, the main indexes are still well below their historic highs.
The blue-chip Dow is 32 percent below its all-time high of October 2007 of 14 164.53 and the S&P 500 some 33 percent short of its record of the same day of 1,565.15. The Nasdaq remains at less than half the level of the tech bubble high of 5 048.62.
This gives ammunition to both bulls and bears, fueling debate on how much further the market can run after a surge of some 50 percent from lows in early March.
"The question at this stage of the stock market advance is, if we're in a recovery, how strong can it be?" said Linda Duessel at Federated Investors.
"We very well may have a V-shaped recovery, a catalyst for the S&P 500 reaching 1,200."
Others are less sanguine.
"People are optimistic about the third quarter, but still questioning how much is being driven by (the government) stimulus and how much is really organic, real growth that's sustainable," says Marc Pado, analyst at Cantor Fitzgerald.
David Rosenberg, chief economist at Gluskin Sheff & Associates and a longtime bear, says he sees "a hope-based rally in the equity markets" that flies in the face of economic fundamentals.
"What we are seeing transpire is without precedent - the magnitude of the employment slide versus the magnitude of the market advance," Rosenberg said.
"The fundamentals take a back seat because there is so much liquidity to be put to work, and it all must go into equities. This reminds us of all the liquidity talk during the bubble peak of late 2007."
Mace Blicksilver at Marblehead Asset Management said he remains cautious about the rally.
"The whole thing that powered the bull market from 1992 to 2000 was that you had lower taxes and less regulation," he said. "Now you have the exact opposite."
Others say the recovery from recession is here and is gaining momentum. making stocks an attractive bet.
Kent Engelke at Capitol Securities Management said the market now expects the economy to grow 2.3 percent in 2010 and that profits for the main S&P 500 firms will rise 25 percent in 2010 after a two-year slump, but argues this may underestimate the recovery.
"I believe both economic and jobs growth will surprise most," he said.
John Praveen at Prudential Financial agreed, saying that "the global recession appears to be ending faster than expected," with growth already turning positive in Japan, Germany, France and Australia.
Praveen said the US economy "is on track to post positive GDP (gross domestic product) growth in the third quarter" of around 3.5 percent amid improving business confidence, consumer spending and housing trends.
Bonds rallied for the week. The yield on the 10-year Treasury bond dropped to 3.342 percent from 3.442 percent a week earlier while that on the 30-year bond declined to 4.175 percent from 4.273 percent. Bond yields and prices move in opposite directions.
In the coming week, investors will mark the one-year anniversary of the Lehman Brothers collapse that sent markets reeling. Also on tap are reports on inflation, retail sales, housing starts and industrial production. - Sapa-AFP
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