Are We Still in a New Bull Market? 18 comments
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Last month I posted and videoed about whether or not we were in a bull market based on five market indicators. I said that one way to tell if we’re in the beginning of a bull market is to try to ascertain whether or not we had seen a bottom. I concluded that we had seen a bottom in the market (November 20th, 752 level in the S&P 500) and that we’re in a new bull market trend. Today I’d like to look at another three:
1. Worst GDP decline in 25 years
On January 30, 2009, the BEA reported that GDP shrank 3.8% in the 4th quarter of 2008 (click to enlarge chart below). This was the worst showing in 25 years. The last time the economy shrank this severely was the 1st quarter of 1982. What did the market do the day these figures came out? It declined 2.2%, falling from 845.1 to 825.9. Not much of a move considering the news.
2. Job losses skyrocketing and unemployment trending toward double digits
February 5, 2009, the Labor Department reported 598,000 were lost bringing the total since the beginning of 2008 to 3.6 million. The unemployment rate went up to 7.6% making it the highest it’s been in decades. What did the market do that day? It went up 2.7% from 845.9 to 868.8.
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3. Market price to GDP ratio
Back in 2001, in a Fortune magazine article, Warren Buffett presented a chart comparing the total market value of U.S. based business as a percentage of GNP. An update of that chart is presented below (click to enlarge). In the article Buffett said, “If the percentage relationship falls to the 70% to 80% area, buying stocks is likely to work very well for you." Currently this ratio sits below 75%.
I compared the market value of U.S. equities using the Wilshire 5000 index which comprises all stocks traded on the major exchanges in the U.S. I then compared it to GDP, a decent proxy for GNP. At the November 20th low, the percentage relationship between the two figures was 64% (Wilshire 5000 = 7.4 trillion and GDP = 11.7 trillion) and by the end of December remained below 80%.
Even if the market breaks through the 800 level, which who knows, it might, I am still on the side of this being a new bull market.
Disclosure: I and the clients of Brick Financial Management, LLC own shares of iShares S&P 500 Index ETF but positions can change at anytime.
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This article has 18 comments:
The banking sector got electrocuted on September 15, 2008 and it is just waiting to die. Don't believe me? Here is what Rep. Paul Kanjorski of Pennsylvania had to say: www.marketoracle.co.uk...
To put this date into context, this is when Lehman Brothers went bankrupt.
Clark Jenkins
FishGoneBad.com
Benjamin, you need to take a deeper look into the economy and what is driving it down. Search for "4th turning" on Google and take a few hours to reaserch the Generational Dynamic of what is happening and it will change your entire investing life.
Look at the leverage all throughout our economy and the world economy and open your mind to the fact that this is the great unwind and if you learn from it your entire life will be totally different than if you just rely on what you have seen so far in your life.
Look to people like Meredith Whitney and Nouriel Roubini and the Evil George Soros and Louise Yamada and anyone else who looks at DATA objectively and does not have an agenda to push or a book to sell.
2. By the same source, unemployment is a leading indicator, but in the opposite direction you suggest. If initial jobless claims go up, we should expect a bear market, not vice versa.
3. I'm not sure a rule-of-thumb ratio from 2001 really applies in the post-crisis economy. If anything, I wouldn't put my money on it.
All in all, this article stinks.
crisis out and started a bull run. I'm afraid the fundamentals that existed a few years ago no longer apply to todays chart analysis because of a loss of fundamental financial and economic resources that have been lost or seriously downdrafted so the mechanism for more than a dead cat bounce no longer exists. I personally believe given the carnage in many factors that are critical for economic productive growth no longer exists. In fact, in my opinion it might be tens of years before the authors type of analysis using the indicators he has used will have an validity.
Saying that we must be in a bull market because stocks went up on the release of some bad news - Unbelievable. Saying that almost every Long-only Fund Manager that is interviewed on CNBC tends to mirror your views.
I suppose we need you to think this way so that we can have our very profitable bear market rallies and just as profitable bear market crashes.
Apparently not.
I've seen articles that cherry-pick the only good indicators to claim that this is the bottom, but this is the first that I've seen take the worst indicators and try to claim those mean good things.
Eternally bullish might be a good stance for an analyst, but if you actually act on your own advice (which it looks like at least your fund is, by your disclosure), I expect you probably won't do quite as well.