Global Stock Markets: Another Fake Rally?

I have commented extensively on the blog site on global stock markets’ performances during the roller-coaster month of November (see Sunday’s “Words from the Wise” post), but for the sake of completeness briefly review the month-end performances of various global stock markets in the paragraphs below.

The chart of the Dow Jones World Index shows how stock markets closed the month with a winning streak of five consecutive up-days – a feat last accomplished by this Index at the beginning of May 2007. Although this performance round-up only deals with data until the end of November, it would be remiss not to mention that heavy selling yesterday snapped the rally as investors focused on poor manufacturing data and the announcement that the U.S. economy had officially entered into recession in December 2007.

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The performances in the following tables are given in both local currency and U.S. dollar terms for different measurement periods ended November 30.

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Click here or on the thumbnail below for a performance table in U.S. dollar terms.

The numbers tell the story, but a few observations are worth highlighting.

Since the highs of late October 2007, mature markets have outperformed developing markets as shown by the declines of 46.9% for the MSCI World Index and 60.6% for the MSCI Emerging Markets Index. The relative-strength graph below clearly shows the outperformance, but it should be seen against the background of a preceding six-year period of underperformance by mature markets.

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The best-performing bourses since the turnaround of little more than a week ago were Canada (+20.0%), S&P 500 Index (+19.1%) and South Africa (+19.1%). However, China (-5.7%) and Venezuela (-1.8%) had considerably less to cheer about.

Notwithstanding the end of November rallies, all global stock markets were still massively down since their respective highs, as well as over the past three months and the year to date.

The worst performers since the highs were Ireland (-74.5%), Russia (-73.4%) and China (-69.2%). On the other side of the performance spectrum, albeit still deeply in the red, were Venezuela (-33.6%), South Africa (-36.2%), the U.K. (-36.3), New Zealand (-37.4) and the Dow Jones Industrial Index (-37.7%). The year-to-date performances of some of these countries are shown in the graph below.

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Have the bourses reached a secular low or have they just been bouncing off oversold levels? Stock markets are caught between the actions of central banks, governments and the IMF frantically fending off a total economic meltdown on the one hand, and a worsening economic and corporate picture on the other. In the absence of base formations developing on the stock index charts, this situation has a “no-man’s-land” feel to it.

In order to make headway over the next few weeks and to follow the favorable historical seasonal pattern, the major indices will have to better the November 4 highs. On the downside, the November 20 lows need to hold to prevent further damage. In any event, until clear evidence of a reversal in the secular bear trend emerges, one should treat all rallies with distrust.

Comments

[investor88:]

How a day's action changes people's mind. Prieur as far as I remembered was turning bull and optimistic in his last article in seekingalpha due to Dow rising 20% in 5 days without pause. Now due to one day's sharp drop goes back to his long held stance of " until a clear reversal of the secular bear trend emerges, treat all rallies with distrust ". This is normal as our long held opinions gets shaped by market action and vice versa.

2008 Dec 02 08:46 AM

[fjpenney:]

Investor88: Have you heard the saying about forecasting that goes "If one must forecast, forecast often!".

Thankfully, my timer took me out of the market in June and I am sitting in IEF until I get a long signal.

Fred

2008 Dec 02 09:36 AM