Stock prices rise for the fourth week in a row, with the S&P 500 ending Friday at 1343, its highest level since June 2008. In this four-week span, the S&P 500 has risen four days out of every five, a bullishness supported by generally strong earnings reports, a positive turn in the leading economic indicators and by the benign turn of events in Egypt. The Federal Reserve’s QE2 program, if Fed Chairman Bernanke is to be believed, has also played a role in encouraging a shift by investors from safe to riskier investments. The price gain in the S&P 500 since its intraday low in March 2009 passed 100% during this past week, one of the steepest market rallies since the 1930s; the bull market upleg since late August now amounts to a 28% rally in six months’ time – as steep a rise as the correction-less first 13 months off the bottom.
INVESTMENT OUTLOOK…The respectable year-end rally in stocks, fashioned out of improvement in leading economic indicators, has continued early in 2011, extending the S&P 500’s increase to more than 100% since the market bottomed in March 2009. In reaction to the outbreak of protest and violence in Egypt, following on the same trends in Tunisia, stock market volatility, as measured by VIX, climbed back briefly above 20%, but it has since fallen back into the “risk-on” zone as investors wait to see how Egypt’s turn toward democracy and free markets develops. For the moment, corporate earnings prospects remain positive, and if Egypt’s transition to democracy is not too ungainly, the general trend of stock prices figures to be up. Keep in mind, though, that market rallies rarely continue in a straight line, particularly not after a doubling of stock prices, as we’ve seen over the past two years.
Copyright © 2011 by Wright Investors’ Service, Inc.