Fisher Investments Editorial Staff
Others

Recycled Pessimism

By, 09/10/2010

Story Highlights:

  • The financial media has recycled the same fears and alarming headlines for months now, and global markets have weathered them, over and over again.
  • There's still plenty of time for 2010 to overcome the recycled pessimism and end up being a pretty fine year for global stocks—similar to 1998 and 2004.  

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It hasn't been a summer of sunny headlines for investors. With the help of mainstream media, investors have found plenty to fret: Health care reform in the US, the Dodd-Frank financial reform act, EU bank stress tests, the PIIGS fiasco along with the $1 trillion EU/IMF bailout, both inflation and deflation, the possible disintegration of the euro, elevated unemployment (in the US and abroad), still struggling housing markets, Basel III looming, US tax hikes on the horizon, China either slowing down or overheating, a double-dip recession, the Gulf oil spill—the list of concerns goes on and on.

The weight of these myriad worries has investor sentiment in the dumps. With sentiment so dour one might believe global stock markets are down big and without hope for the rest of 2010. But don't pack it in and declare 2010 a lost cause quite yet.

True, the ride for stocks has been a bit bumpy with two corrections—one small and one large—but despite these swings and in the face of a barrage of worrisome headlines, stocks have held up quite well. This year, the S&P is down only about 1%, the MSCI World is down only slightly more, and Emerging Markets stocks collectively are actually up! And all are still up huge from the bear market bottom in March 2009.

The financial media, with nothing new to report, has recycled the same fears and alarming headlines for months now, and global markets have weathered them, over and over again. Major known events have come and gone, and markets have endured—this is the wall of worry bull markets always climb. The more these scary stories are rehashed, the less troublesome they become. The real threat to global markets is something unforeseen, with actual teeth. But with investors already braced for trouble, it would likely take a doozy to cause another big market drop.

With so many major events behind us, the rest of the year looks to be relatively tame, possibly allowing investors to refocus on largely unheralded positive factors. It's unlikely the media does a 180-degree turn and touts the continuing (and often better-than-expected) economic recovery in developed countries, stellar economic growth in emerging economies, healthy corporate balance sheets, booming global trade, overwhelmingly positive corporate earnings growth, and attractive equity valuations. But without new worries to report on, these bullish forces gain relative power. So despite a basically flat market so far this year, investors shouldn't assume 2010 is a bust.

There's still plenty of time for 2010 to overcome the recycled pessimism and end up being a pretty fine year for global stocks—like 1998 and 2004. 1998 saw a similar bevy of seemingly insurmountable headlines, with the failure of Long-Term Capital Management, the Russian ruble crisis, and continuing Asian contagion fears. But in 1998 global stocks finished up a robust 25%, and that's after being in negative territory as late as early October. Like 2010, 2004 was the second year of a bull market. After big gains in the bull market's first year (similar to 2009 in this cycle), the bull market stalled for much of 2004 but finished with a bang. As late as mid-August, the S&P 500 was off about 4%, with global shares down a bit less, only to finish the year up 11% and 15%, respectively.

Will 2010 end like 1998 and 2004? It's impossible to know. But these years and a host of others show strong year-end moves are more common than many investors likely realize. Pessimism and fear are pervasive today, which is always the case after a bear market, and ultimately bullish for stocks. We don't know what's in store for the rest of the year, but one thing we know for certain is it's way too early to count 2010 out.

*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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