Fisher Investments Editorial Staff
US Economy

Fool’s Gold?

By, 03/16/2009

Story Highlights:

  • Stocks got a boost last week. But that shouldn't surprise—with all the negative volatility lately, we were in for a bounce.
  • Economic news came in better than widely expected, and the feds announced little of consequence.
  • Some will call it a bear market rally, others will say the new bull has arrived. The truth is there's no way to know when dealing with short-term moves.
  • If anything, big up moves like we witnessed last week show how quickly the market can bounce—investors should position themselves to take advantage.

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Investor's got a little sweet relief last week as markets recovered some lost ground. A break in the bear is welcome, but shouldn't surprise too much. With all the extreme downward movement, we were in for a bounce. (Markets had previously been very oversold.) This is the definition of volatility—it goes both ways. And fool's gold or no, to try and navigate the short-term chop is a fool's errand.

There was cautious optimism evident in the headlines all week as news came in better than widely expected. US retail sales were revised up to 1.8% in January and, instead of cratering in February, declined only 0.1%. This doesn't mean we're through the downturn—after all it's just a couple months' data—but it does seem to indicate consumer spending, making up the majority of GDP, could come in better than widely expected in the first quarter.

In other economic news, commodities and freight rates rebounded strongly. Also a good sign for the global economy—rising prices usually signal rising demand, and in this case, it means businesses are moving more goods. It wasn't just economic data beating expectations. A few of the big banks making monstrous headlines since the fall reported profitability in the first two months of 2009. And all this, theoretically, before the stimulus has had time to take effect.

Perhaps just as notably, outside some debate about mark-to-market and the uptick rule, Washington was mostly quiet. There haven't been many weeks we've been able to say that of late. Keep in mind, none of the news last week was incredibly positive. But to markets the absolute results matter less than whether or not those results are relatively better or worse than expectations. In this environment, it doesn't take much to surprise folks on the upside—and when that happens, markets climb higher.

Undoubtedly, there will be bears who'll call this a sucker's rally, and bulls (probably the minority) who think a new bull market's brewing. Both are wrong simply because there is no way to know what a week's worth of returns means until long afterward—it's too short term. If anything, big up moves like we witnessed last week show how quickly the market will bounce when it does. And as we've said often, there's no way to know when that happens, just that it will, and when it does investors don't want be caught second guessing themselves. Better to sit tight than debate the details for now.

 

*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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