“Worst month in 21 years and best week in 34 years.” And other fun stats from Floyd Norris at the NYT below.
The big question (weigh in below): Was that it? Was that the bottom? Guests certainly sounded a lot more chipper toward the end of the week on CNBC–as compared to the week before when it was 24/7 Armageddon (CNBC guests are a concurrent indicator, not a leading indicator). If the market continues its move, the guests will get more and more bullish, and soon you’ll start to feel like you’re missing something.
What do we think? It certainly could have been the bottom. Our guess is we’ll see another leg down, but we wouldn’t put huge odds on that. JP Morgan just announced that it is voluntarily renegotiaiting $70 billion of those crap WaMu ARMs, and we expect other banks will follow suit. Bill Gross went bullish this week. John Hussman, Jeremy Grantham, Warren Buffett, and a bunch of other long-term investors flipped to the positive over the past few weeks, as did we (based on valuation).
There’s a strong case to be made that stocks will violently overshoot on the downside, the way they have in the past after bubbles, and the economy still seems to be getting worse at a “stunning” rate, as Time Inc CEO Ann Moore said this week. That’s why our guess is there will be another leg down. But long-term folks will drive themselves nuts trying to get the exact timing right (and lose their shirts, to boot).
[I]t was the most volatile week in the 80-year history of the S.& P. 500.
The huge gains of the final week were reminiscent of the sharp recoveries from bear market lows in 1974 and 1982. Both of those moves came while the economy was mired in recession, as it almost certainly is now.
If Monday’s stock market lows prove to be the low prices for this cycle, the bear market will have ended with the S.& P. 500 down 46 per cent from the peak it reached in October 2007.
That would make the bear market almost, but not quite, as bad as the 1973-74 bear market, which ended with the index down 48 per cent.
In the 2000-2 bear market, the fall was 49 per cent.
The hectic market action in October spread across most of the globe. Remarkably, the American market was one of the calmer markets during the month. Several had more volatility and larger swings in prices.
Nor was the volatility limited to stock prices. Oil prices fell 33 per cent during October, making this the worst month for that market since oil futures began trading in 1983. Oil is down to just under $68 a barrel, from a peak over $145 in July.
One volatility measure, shown in the accompanying charts, is the number of days in which an index closes up or down at least 4 per cent.
In normal times, the market goes years without having even one such day. There were none, for instance, from 2003 through 2007. There were three such days throughout the 1950s and two in the 1960s.
In October, there were nine such days.
The accompanying chart shows the months, from 1928 through the present, when the S.& P. 500 had at least five days with 4 per cent moves. Most of them were during the 1929 crash and the Great Depression.
Until now, September 1932 held the record for the most days with big moves, at eight.
Two days during October ended with the index leaping more than 9 per cent, something that had happened only nine times in the previous 80 years.
For the week, the S.& P. 500 was up 10.5 per cent, the best weekly gain since a 14.1 per cent rise in the week that ended Oct. 11, 1974.
If the rebound this week indicated that the bear market of 2007-8 had ended, it lasted just over a year and hit bottom on Monday, at 848.92. It recovered to 968.75 by week’s end.
There were similar moves in most major indexes. The Dow Jones industrial average ended the week up 11.3 per cent, at 9,325.01, and the Nasdaq composite climbed 10.9 per cent, to 1,720.95.
For the month, the S.& P. 500 was still down 16.9 per cent, the worst showing for the index since it fell 21.8 per cent in October 1987. The Dow fell 14.1 per cent, and the Nasdaq index lost 17.7 per cent.
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