Predicting the Market Can Be a Frustrating Business
Where’s the Party?
by Westin Wellington
The surge in stock prices around the world in the first quarter serves as a reminder that predicting market trends can be a frustrating business. Six months ago, the outlook for stock prices appeared to be fading from grim to grimmer: Congressional leaders were wrangling unsuccessfully to craft a deficit reduction plan, Standard & Poor’s had removed its AAA rating on US Treasury obligations, and Greece appeared one step away from defaulting on its debt. Yet just when many investors least expected it, stocks staged a powerful rally: From the low for the year on October 3, the S&P 500 Index rebounded 28.1% through March 30 while the Russell 2000 Index jumped 36.2%. As the news excerpts below suggest, it is worth recalling the Wall Street adage that “bull markets climb a wall of worry.”
August 5, 2011—S&P downgrades US Treasury debt to AA+ from AAA; stocks plunge in the biggest selloff since 2008.
September 3, 2011—Journalist: “The US economy slammed into a wall in August, failing to add new jobs for the first time in nearly a year.”
September 5, 2011—Gold reaches a record high of $1,895 per oz. (London Fix).
September 19, 2011—Wall Street chief equity strategist: “I don’t think we’ve seen the lows for the year by any stretch. Things have to get much worse before they get better.”
September 23, 2011—Journalist: “The world economy once again stands on a precipice.”
September 26, 2011—Investor: “I don’t see anything changing in the next two or three years.”
October 1, 2011—Economist cover story: “Unless politicians act more boldly, the world economy will keep heading towards a black hole.”
October 3, 2011—US stock prices slump to their lows of the year: 1099.23 for the S&P 500 and 609.49 for the Russell 2000 Index.
October 13, 2011—Census Bureau reports the weakest income growth over a ten-year period since records began in 1967.
October 20, 2011—Col. Muammar el-Qaddafi killed by Libyan rebel forces.
November 20, 2011—Consumer goods CEO: “Consumers everywhere continue to be cautious and hesitant to spend.”
November 21, 2011—US Congressional “supercommittee” fails to reach deficit reduction agreement.
November 24, 2011—Market strategist: “Earnings growth is very quickly decelerating.”
November 28, 2011—Moody’s Investors Service warns that multiple countries could default on their debt.
November 29, 2011—AMR Corp., parent of American Airlines, files for bankruptcy.
December 10, 2011—Detroit’s mayor predicts the city will run out of cash by April 2012.
January 6, 2012—Gasoline prices are at the highest point ever for a new year.
January 18, 2012—World Bank: “Developed and developing-country growth rates could fall by as much or more than in 2008–09.”
January 18, 2012—Eastman Kodak files for bankruptcy.
January 25, 2012—Report from Davos World Economic Forum: “Global elite fears renewed downturn.”
February 13, 2012—Journalist: “There is still plenty that could go wrong in Europe, while U.S. economic growth remains slow and corporate earnings are looking less and less robust.”
February 27, 2012—Money manager: “This is a business-as-usual overpriced market and you’ll get a zero return for seven years.”
March 2, 2012—Eurostat reports that Eurozone unemployment in January reached 10.7%, the highest in fifteen years.
March 12, 2012—Strategist: “The stock market has effectively doubled since the March ‘09 low, and we’re still in redemption territory for equity funds.”
March 19, 2012—Journalist: “Expectations for earnings have been steadily scaled back this year, as the mood among companies has worsened.”
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