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The market cap of global equities is up over $16 trillion since the March lows, according to Bloomberg's index shown in this chart. That's up 63% versus the S&P 500's gain of 52%. But if you consider that major foreign currencies have risen about 14% versus the dollar since the March 9th equity market low, that means that foreign equity markets have actually underperformed the U.S. market. Regardless, this has been a monster rally.
The magnitude of the global equity market collapse, and the strong recovery mounted so far in the past 5 months, are mind-boggling. Unimaginable amounts of money have been lost by investors who capitulated to panic-driven fears. Those who sold keep fearing that another decline is imminent. Their comfort level is not helped by the likes of the Economic Cycle Research Institute's Weekly Leading Index, which points to a strong economic recovery. "With WLI growth continuing to surge through late summer, a double dip back into recession in the fourth quarter is simply out of the question," said ECRI Managing Director Lakshman Achuthan, reinstating the group's recent warning to ignore negative analyst projections."
4 comments:
I think those that sold are more in fear of missing the great bounce rally and/or missing a new long term trend; doubt they are in fear of another decline; there is no bull like a burnt bear.
But wouldn't you say that the "great bounce rally" has already happened, or at least a significant portion? Up 50-60% counts as a huge rally in my book.
If I were not a contrarian I would agree, but every trader at the gym working out is saying the rally's over, time to get out or short. I remember telling people that selling the bottom is more stressful than buying the top, because at least when buying the top, you are in and committed. What if the market just continues to climb a wall of worry for a long long time?
The market is going to be climbing a wall of worry for a long time, in my view. The fact that it has rallied so much is what scares people now. The point of my post was that despite the huge rally, things are still cheap and it is not really a scary proposition to be long the market here.
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