Inside Wall Street: Yes, This Bull Move Could Have Legs

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Gene Marcial's Inside Wall StreetFinally, the bulls have the ball, and in all likelihood, they're going to run with it -- at least through 2011's first half.

The protracted tug-of-war in the equity market came to an abrupt halt on Sept. 1, when the bulls trumped the bears and pulled them to the ground. Without much warning, the U.S. stock market suddenly marched up quite vigorously, and the global equity markets soon followed to come out of their gloomy stupor.

Although the market naysayers will talk down this upside rush as just another bear market rally, investors shouldn't doubt the sustainability of what now appears to be the next leg of a bull market. It's sustaining strength will come from one unexpected factor: a recovery that very few are counting on.

Like the far-from-expected bull run that started without warning right after the markets crashed to their lows in March 2009 -- with Dow having plunged to 6,594 -- the sudden advance that started with September's first day is anticipating favorable news about the inroads the economic recovery is making. In both cases, the universal feeling was that nothing but gloom and doom was ahead for the economy and the markets.

Pleasant Surprises, for a Change

In a nutshell, yes, the recovery is once again gaining traction. Yes, the employment numbers are starting to creep up as the private sector begins to hire again, even if still modestly. And yes, some housing numbers pertaining to sales and starts, are also showing signs of life. Sure, the incremental improvements are far from mind-blowing -- similar to the way they were in early 2009. But the market's robust advance is forecasting that those numbers will surprise with pleasant news for a change.

As my colleague Charles Wallace so pointedly argued in his DailyFinance piece on Sept. 6, "There's good news at last." He noted that "layoffs have slowed considerably, people are feeling more secure in their jobs and prospects for white-collar workers are suddenly downright rosy."

A new factor that wasn't in play before the market's September advance is President Obama's revelation on Labor Day that the government will invest $50 billion in infrastructure programs. This could help give back some momentum to the recovery -- and jump-start the hiring process toward alleviating the unemployment crisis. And lest we forget, the government's bailouts and stimulus package that helped save the banks and state governments pulled the economy from the brink, preventing its collapse during the financial crisis from becoming another depression.

"Rush for the Buy Button"

In a blog post for CPReport.com that I wrote on Aug. 31 and that appeared on Sept. 1, I predicted that a stock market snapback would happen in early September, partly on technical grounds. The major market indexes and general investor sentiment had plunged to their lowest depths, again similar to what occurred before the bull started showing its horns again in mid-2009. Total negativity was in the air back then, as it was in late August of 2010. And like a coiled spring, the market did snap back on Sept. 1 -- to the consternation of the double-dip believers and market doomsayers. By Sept. 3, the Dow had jumped to 10,447 from 9.985 on Aug. 27.

During the summer, I exhorted investors to look up and get beyond the negative headlines. In my column on Aug. 9, I reminded that "once investors get their bearings right, when the job numbers improve and home sales and starts rise again, they will rush for the buy button." It's a matter of truth that "whenever the market indexes appear to be plunging to their lowest depths -- as they did during the financial crisis -- intrepid investors come out and scoop up stocks."

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Investors should have been bargain-hunting when stock prices were tumbling amid the market turbulence. In early May 2010 -- when the market was in the midst of what appeared would be a long decline, I advised investors "not to panic and buy when everyone was selling." Those who heeded that advice should be amply rewarded by now.

Will this latest market move develop long legs and drive up the Dow to 11,000 to 12,000, if not higher-through mid-2011? Why not? The skeptics would argue that a mountain of problems can suffocate the market's further advance. There's the old Wall Street adage, however, that the market ultimately "climbs a wall of worry." But beyond that, based on both prospective economic resuscitation and the market's technical punch, many undiscounted positives can power the market's upward thrust.

To my mind, the bears' gloomy forebodings are already mostly reflected in the market's depressed levels. The bears have had their bloody turn. The bulls will now have their sweet rollicking time -- and investors should enjoy it.
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