Fisher Investments Editorial Staff
Investor Sentiment, Market Cycles

Choose Rubber

By, 05/27/2009

Story Highlights:

  • In the last month, stocks have endured a barrage of bad news, from North Korea's nuclear tests to stark GDP reports to a big auto bankruptcy.
  • Yet, for all that trouble, markets largely continued the huge rally begun in March—as it's said, bull markets climb a wall of worry.
  • If stocks retest recent lows, the "sucker's rally" would rank number two all-time. Not out of the realm of possibility, but less likely the longer the rally is sustained and the higher it goes.

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Sticks and stones may break bones, but words? Words bait bull markets. Stocks have endured a barrage of bad news in the last month. Here's a sampling (in no particular order):

Yet, for all that trouble, markets largely continued the huge rally begun in March (outside a minor one-week pullback). How can that be? You've probably heard the old saw: Bull markets climb a wall of worry. Bad news is the mortar holding that wall together—and we've seen plenty. There'll likely be more to come. But stocks don't care about what's just happened—that's old news, already reflected in prices. Markets shade future probabilities. That means, although the here and now can be nasty, prices may climb higher still on the notion a recovery awaits. And it's not just in theory: Despite all the recent negativity, amply demonstrated above, stocks have surged faster and stronger from the March bottom than most investors have ever seen.

There's always the chance we're witnessing a massive bear market rally. Some unforeseen development could yet tank the recovery. But if markets retest recent lows, the "sucker's rally" would rank number two biggest of all-time.* Not out of the realm of possibility, but less likely the longer the rally is sustained and the higher it goes. And as the big stories (economic woes, auto woes, banking woes, housing woes) keep recycling, stocks have a better chance of maintaining their upward momentum.

Keep an eye out for those sticks and stones—but as the bevy of bad words barrels on, choose rubber, not glue. You can be sure markets will too.

* Based on the S&P 500 Index. Source: Global Financial Data

*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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