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Economic Review |
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03/16/09 US Stocks posted a hopeful rally last week, but let’s take a step back and put things in perspective Just as some of the most sophisticated Equity investors painted a dire situation for the US economy, US Stocks managed to look into the abyss and react with a valiant rally last week. The big three, Dow/S&P/NASDAQ all posted double digit percentage gains from their lows. Three major events helped buoy the market rally which entailed Citigroup posting a profitable near term performance, Retail Sales coming in better than expectations and the announcement by GM that it may not need their near term bailout funds as cost cutting measures helped stop the bleeding. The major Indexes did respond with impressive gains, however let’s put things in perspective. The lows set back in 2008 entailed the Dow at around 7500. When this level gave way just recently the market seemed to be in near free fall. Remember this, the major Indexes all posted over 30% losses in 2008 with the Nasdaq and S&P in excess of 35%. As the markets broke down in February and March of this year, the losses represented additional depreciations of over 20% for these Indexes. Simply put, the major indexes were in the realm of losing nearly 60% of their value in just over one year. Yes, the bubble economy burst and the fallout has been horrendous with unemployment doubling and housing prices falling precipitously. However, even with the doom and gloom scenario, a 60% decrease in the price levels of the major Equity Indexes for the world’s largest economy is drastic to say the least. Last week the markets managed to rally in excess of 10%, but it’s still just a blip on the radar screen of the overall picture. Remember, the Dow Jones at 7500 just a few weeks ago was seen as an excessively low level….last week’s gains haven’t even gotten us back to that yet.
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| Stephan Kudyba (MBA, PhD) THE MARKET DOCTOR |
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