Still, some specialists said the incipient rally is reminiscent of the aborted upturn that began in mid-November after stocks had tumbled to their lowest level in 11 years. The S.& P. 500 climbed 24 percent from Nov. 20 to Jan. 6 before it fell in the last two months.
Market analysts say history shows that the strongest stock-market rallies take place amid bear markets as investors search for any sign of good news. But those rallies generally fade, as it becomes clear that economic difficulties will persist for longer than many had hoped for.
“There is nothing new here, every serious bear market has rallies like this,” said James L. Melcher, president of Balestra Capital, a hedge fund, which is betting that the markets deteriorate further.
The nation’s banks, Mr. Melcher noted, may be making money on an operating basis by making new loans with funds borrowed from the Federal Reserve with interest rates approaching zero, given the Fed’s easy-money policies to combat the credit crunch. But all the bad loans and toxic assets from poor decisions in the past are still on their books, he said, and reckoning will come due eventually.
A recovery is not around the corner, economists say, but there is a chance when it comes the rebound will be fairly robust.
Nick Bloom, an economist at Stanford University, said that a declining, though still high, volatility in stock markets and “reasonably good” federal policies suggested that the economy should be able to avoid the long stagnation of Japan in the 1990s or the Great Depression.
Mr. Bloom, who has studied 16 financial crises before the current one, said the recovery, which he expected in late 2009 or early 2010, should be fairly rapid.
Still, Mr. Bloom cautioned, his comparative optimism depends on solid policy steps to ease the credit crunch and restore confidence.
On Wall Street, optimism has been scarce recently, and the several-day rally was greeted with relief, if skeptically.
“The only thing you can say right now is that this was long overdue,” said Ryan Larson, head equity trader at Voyageur Asset Management. “The last several weeks there’s been a bloodbath of selling. Whether this is the bottom or not, nobody’s going to know for months to come. At least for the short term, we’re seeing some very positive signs.”
Vikas Bajaj contributed reporting. |
