Bear market may stick around for fourth year
Some analysts say things could get much worse before the market turns the corner.
By DANIELLE DIMARTINO
The Dallas Morning News
Tuesday, March 25, 2003
Investors may be asking themselves just how many rallies this bear market has in its gas tank.
The Standard & Poor's 500 index has chalked up four major rebounds since peaking in March 2000.
Each time the broad index has surged by about 20 percent, and each time investors say, "Surely that last low was the bottom."
A demoralizing fourth down year in the stock market is an alien concept to all but the few investors who can recall the Great Depression. But more and more experts say it's within the realm of possibility.
In fact, some worry that things could get much worse before the market truly turns the corner. In numerical terms, the S&P 500's rallies pale in comparison to those that have come and gone in Japan.
Since Japan's stock market peaked in December 1989, investors there have watched 16 double-digit bear-market rallies fizzle. The benchmark Nikkei 225 index peaked at nearly 39,000. It recently breached the 8,000-point level.
Indeed, lessons from Japan can apply on Wall Street, suggested Gail Dudack, chief investment officer at Sun Gard Institutional Brokerage Inc.
In her latest weekly update for investors, she reported finding similarities between the start of Japan's bear market in 1989 and the U.S. bear market in 2000. In both cases, the onset of the downturn was preceded by a marked drop- off in consumer sentiment.
"The U.S.-Japanese parallel is striking," Dudack said.
Like the Japanese, U.S. investors have grown wary. In the past two weeks, stocks once again tantalized investors with attractive returns. But ingrained cynicism may prevent some investors from letting go of their cash.
According to Martin Barnes, managing editor of The Bank Credit Analyst newsletter, the more than $5trillion now parked in money-market funds and savings accounts represents a near-record high when compared with U.S. stocks valued at $8trillion.
But even the size of that cash hoard, he said, may not be enough of a reason to assume it will be funneled back into the market.
"Don't expect any major bull market anytime soon. The market will trade sideways for quite some time," Barnes said.
But inside that prediction, Barnes also said that investors should expect to continue experiencing "rallies that sort of peter out after some time."
Indeed, on March 11 the S&P 500 had fallen to 800.73 and was perilously close to breaching its previous bear- market low of 776.76 on Oct. 9.
But the next two weeks showed the power of a rally in its early stages. The S&P rose 11.9 percent through Friday, before taking a tumble Monday.
Even if the uncertainty has ended now that war with Iraq has started, some experts worry that those doubts have been replaced with new ones.
"Right now, we're considered to be somewhat of a thug by the rest of the world," said David Tice, chief executive of the Dallas-based money management firm David W. Tice and Associates Inc.
"The global tension is just beginning, so in a way another uncertainty is just beginning."
As if waking up to this reality, stock indexes Monday struggled to retain the momentum that propelled last week's three-day, 600-point rally.
It can't help that traders cannot seem to escape the mixed economic news much closer to home. Last week, for example, the roof fell in on housing starts, yet new applications for mortgages reached a record high.
Many market gurus worry that an air of disbelief continues to cloud investors' outlooks.
"When you burst a major asset bubble, like Japan at the end of the 1980s and like the United States at the end of the 1990s, it takes a very long time to recover," Barnes said.
"Long-run total returns are going to be modest - even by prebubble standards," he predicted, adding that "modest" is somewhere between 5 percent and 7 percent annual returns.
At those levels, investors may be a hard audience for Wall Street to warm up. |
