That should be the question in every investor's mind now, after a Fed-inspired run in the stock market over the past couple of weeks (post Bear Stearns (BSC)).
Home stats showed there might be some perk up in activity after a prolonged slow down, though job loss indicators did not indicate any meaningful reversal of trends. Confidence indicators and economic stats across Europe (notably Germany) indicated that the situation is not as bad as it was thought - adding to selling pressure on the US dollar.
Are we at a bottom yet? I would presume no. There have been certain sectors like Financials and Homebuilders which have been beatee so badly that they were bound to bounce back a bit at least...especially after the beating Financials took around the $2-a-share-BSC playout. Stocks like Citi (C), Lehman (LEH) and JPMorgan (JPM) all had a pretty good run, and the overall DOW (DIA) indicator is back to the 12,600+ levels. However, the current earnings season underway would probably confirm that growth has indeed slowed down and earnings momentum has been negatively affected across sectors.
The after-effect of the financial squeeze/credit crunch is only starting to show on downstream sectors and it would take a few quarters to say we are out of the woods yet. This earnings season, Manufacturing should slowly start showing kinks in the armor and Tech should re-affirm medium-term demand weakness. This would definitely cause a pull back to the 11,700-12,000 range in the next few weeks.
I am bearish on manufacturing and energy stocks at this point in the economic cycle. Stocks like Chesapeake (CHK), for example, had a pretty good run...akin to the run heady commodity stocks like Goldcorp (GG) had in the commodities upswing rally. Demand weakness would slowly start to re-affirm very soon and valuations will take a beating. In Financials, there are stocks like Merrill Lynch (MER) which have not been punished fully yet; as the Wachovia analyst rightly pointed out, I think there's more downside to MER at this point since their exposure to this whole subprime thing is probably highest after C and BSC.
If you want to play short-term, the best play in this market is to bet against some Financials (SKF) which have rallied heavy and bet for some retail (Crocs (CROX)?) and pharma stocks (Schering-Plough (SGP) ?) which have been relentlessly beaten up. Be long on Financials long-term though, getting in during down-turns in the market cycle. And, I would be positively short on energy stocks at this point.