Stocks leave March like a lion
What does a sense of renewal and optimism have to do with the stock market? Everything.
Stocks are at their essence a bet against the future. When people are optimistic, stocks rise and when they are pessimistic, they fall. That's how it works in theory, anyway. As investors who have seen their portfolios bloodied for about two years can attest, the reality is more complicated.
For instance, the stock market is poised to have one of its best months since 2003 and one of the top 20 months since 1950, according to MarketWatch. Shares are rebounding as investors' concerns about the financial condition of banks has eased, despite lingering worries about a possible bankruptcy at the automakers.
"In March, it wasn't that things got materially better, they just got less worse," said Mike Ryan, New York-based head of Americas wealth management research at UBS AG, in an interview with Bloomberg News
Indeed, experts have cautioned that stock markets do not move steadily higher or lower. Once stocks hit a low, they will retest them. Figuring when markets have actually hit bottom is difficult for even the most seasoned investors. Some money managers argue that it is not worth the bother.
As investors swoon over the recent market recovery, it's important to remember a few things. Even with the recent gains, both the Dow Jones Industrial Average and the S&P 500 are down more than 10 percent so far this year. The Nasdaq Composite Index is down only about two percent. All three indexes are off more than 30 percent over the past 52 weeks.
Steven Bleiberg, president of Legg Mason Global Asset Allocation, told DailyFinance that investors should be careful to not become too obsessed with the market's numerical milestones.
'It s kind of silly to focus on things like that," he said.
Indeed, Bleiberg argues that investors should focus on what should be the main driver of stock performance -- earnings. He sees no data "pointing to any wonderful turnaround in earnings," he said.
Indeed, the economic data remains depressing.
The World Bank today predicted that the world economy would contract by 1.7 percent this year, the first decline since World War II. The OECD, which represents rich nations, predicts that the world economy will shrink by 2.7 percent, according to the BBC. Home prices fell at a record level in January while consumer confidence remained near record lows, according to the latest survey data.
If investors find these signals confusing, they have plenty of company. A Charles Schwab study of independent Registered Investment Advisors found that 44 percent expect the current recession to end in 2009, while 41 percent believe the recession will extend into 2010. Most of the managers surveyed expected the S&P to rise during the first half of the year and for unemployment to rise.
Bleiberg recommends that investors stay diversified and to avoid taking extreme positions such as going to all cash. He also urged investors to avoid the temptation to try and call a bottom, something that's difficult to do under the best of circumstances.
"These are certainly not normal times," he said.