The boomlet goes on into a fifth week; who would have believed it?
Green shoots abound in various economies (If you ignore the growing problem in unemployment in the US, Japan, Europe, and this week in Australia).
Unfortunately it’s a bear market rally and will end in tears in the about to start reporting season in the US for the first quarter.
Some terrible sales and profit stories will emerge and despite the spin on the next few months, investors will look, wonder and take profits.
The Financial Times reported over the weekend.
"Scattered signs of green shoots in the global economy are raising hopes that the recession could bottom out later this year, paving the way for economic recovery in 2010.
"However, the signs remain tentative. Economists warn that recessions rarely proceed in straight lines and false dawns are common before recovery finally takes hold.
"With the world economy in uncharted territory – in a synchronised downturn, with a badly damaged financial sector and need for large balance sheet adjustments at overstretched households – few experts have any confidence in their forecasts."
And the paper also wrote in its Lex column.
"This has the hallmark of a bear market rally – a brief spurt when bad news is brushed aside before crashing back."
"It is the trash that has done best. Over the past month, while the FTSE All-World index has roared ahead by a quarter, AIG’s share price has almost tripled while Citigroup’s has doubled. In Europe, highly indebted companies such as retailer Debenhams, house builder Taylor Wimpey have gained more than 100 per cent."
"Many companies say sales are down but still believe they can protect profit margins. Last year, these were near all-time highs.
"But in a typical recession, as SocGen points out, they can halve. The bad corporate news is yet to come."
And that’s something to keep in mind in assessing the outlook into April and May.
Wall Street shrugged off another terrible jobless report: the unemployment rate is up to 8.5%, over 660,000 lost their jobs, and millions more are working short hours for less pay.
And despite those ‘shoots’ there’s no sign of those losses ending or easing off.
But the major markets finished up on the day and the week and for a fourth week.
The Standard & Poor’s 500 Index is now up 24.5% from a 12-year low hit in early March.
On Friday, the Dow closed back above 8,000 for the first time since early February.
For the week, the Dow advanced 3.1%, the S&P 500 rose 3.3% and the Nasdaq climbed 5%.
For the four-week period ended Friday, the Dow has gained 21.5%, making it the blue-chip indicator’s best four-week run since May 1933, when it gained 31%.
(What an unfortunate comparison)
In Europe stocks fell Friday reacting to the jobs report. That trimmed the fourth straight weekly advance.
The Dow Jones Stoxx 600 Index fell 1%, but it still posted its fourth week of gains, up 6.1%. The index has climbed 18% since March 9.
Shares retreated in 14 of the 18 western European markets Friday. France’s CAC 40 lost 1.1% and Germany’s DAX added 0.1% percent.
London’s FTSE 100 lost 2.3%, but rose 3.4% last week, which was also its 4th weekly rise in a row.
The FTSE Eurofirst 300 as a whole added 4.5%, Germany’s Xetra Dax rose 4% and the French CAC 40 put on 4% as well for the week.
Asian shares were also up for a 4th week in a row, the longest rally in 18 months, as Group of 20 leaders agreed on measures to fight the global recession.
Car companies in Japan like Toyota, the big Asian bank, HSBC and some resource and energy companies led the way, despite more bad news from the Japanese economy.
The MSCI Asia Pacific Index rose 1.4%, the first time stocks have rallied for a fourth-straight week since October 2007.
The index has jumped more than 20% from the five-year low on March 9, the level that technically indicates a bull market. The loss for 2009 is now back to 3.2%.
Hong Kong’s Hang Seng rose 3%, erasing its decline for the year.
Japan’s Nikkei added 1.4%, while South Korea’s Kospi Index added 3.7% and Australia’s ASX200 added 1.7%.
China slipped slightly on Friday but was still up more than 30% this year, the best performed market in the world.
Australian shares also posted their fourth consecutive week of gains.
The AMP’s chief strategist, Dr Shane Oliver said on Friday:
"While it’s too early to say for sure that shares have bottomed there are certainly positive signs starting to emerge and in any case further gains are likely over the next few months.
"There is increasing evidence that world wide monetary and fiscal easing is gaining traction and that the severity of the global recession is easing which adds to confidence that economic recovery will start to occur later this year and through 2009.
"The rally in other growth oriented investments such as commodity prices and the $A provides confirmation for the rally in shares.
"Shares remain very cheap compared to cash and bonds.
"And finally, scepticism regarding the rally remains high which is a positive sign from a contrarian perspective.
So notwithstanding inevitable volatility, which will probably remain high given the ongoing level of uncertainty regarding the economic outlook, we think shares have more upside ahead of them."
