How Now? Is It Over For The Bear Market Or Should We Expect Worse?!

Posted on the UK Independent

• Bear market has ended, says Morgan Stanley
  By Mathieu Robbins
  Wednesday, 5 November 2008
  
  Analysts at the US investment bank Morgan Stanley are recommending that clients start to buy shares again after more than a year of falling markets. In an investment strategy report, analysts at the bank said that all four indicators they use to gauge the equity market outlook have started to indicate a turn in the downward trend.
  
  "We have now come full circle: our market timing indicators are giving us a full house buy signal," said the statement. "Each of the four indicators – valuation, capitulation, risk, fundamentals – tells us to buy."
  
  The report said that the catalyst for the change in outlook was that the last few investor groups – retail investors, sell-side analysts and purchasing managers – have "capitulated" to bear market sentiment. "The idea is that when these three groups know about the bad news, equity prices are probably already reflecting it," it read.
  
  The note recommends that investors keep shares in their investment portfolios to take in the expected growth.
  
  It comes after months of stock market falls that have seen London's FTSE 100 index lose about a third of its value in the last year. However, even the report's compilers admit that while they consider it to have a "near-perfect" track record, there is a chance it is wrong.
  
  "These models tend to work some 80 to 90 per cent of the time," they said. "And in the 10 to 20 per cent that they don't work, the move the other way can be spectacular."

However, them folks at Fitch Ratings are saying otherwise!

• Expect ‘severe’ world economic downturn next year, Fitch says
  
  Less spending by U.S. consumers will lead to the most significant decline in global economic growth since World War II
  
  By Mark Bruno
  November 4, 2008 2:20 PM ET
  
  Global economic conditions have gone from bad to worse in a hurry, prompting analysts at Fitch Ratings to predict a “severe” global recession will consume the world’s most developed economies next year.
  
  In a report released today, Fitch analysts estimated that the United States, Europe and Japan will see a contraction of 0.8% in their combined gross domestic product in 2009, in contrast to estimated GDP growth of 1.1% for 2008. That would register as the most significant decline in global economic growth since World War II.
  
  It appears the U.S. economy may be the most severely impacted, igniting an “unusually synchronized downturn” next year. Fitch predicts U.S. GDP will decline by 1.2% next year, in contrast to its 1.4% growth in 2008 and 2% gain in 2007.
  
  With the credit crisis intensifying greatly in the last two months, consumer confidence has declined to all-time lows, and Fitch expects that will translate into a 1.6% decline in consumer spending next year. Fitch noted that U.S. consumers have been the “predominant sources of global demand” over the last several years and have driven major economic growth in both developed and emerging market nations.
  
  At the same time, the confidence of corporations in the U.S has eroded significantly over the last two months. Many companies are now investing less in their businesses, a trend that will likely continue well into 2009 because banks have tightened their lending standards, making it more difficult for companies to access credit.
  
  Companies invested 5% less in their businesses in the third quarter than they did in the second quarter, Fitch pointed out, and its analysts predict that overall business investment will drop by 6% next year. In 2007, companies increased investments in their businesses by 5% over the previous year.
  
  Fitch also expects the unemployment rate in the U.S to hit 7.8% next year and 8.3% in 2010, up from its current level of 6%. The rise in joblessness will contribute to, and perhaps prolong, the global economic downturn, with Fitch analysts suggesting that signs of recovery may not appear until 2010. But the analysts conceded that it is almost impossible to tell when the downturn might let up.
  
  “Recession driven by a contraction in the supply of credit is uncharted territory for the world economy, and there are few historical parallels on which to gauge its possible depth or length,” wrote the London-based team of Fitch analysts. “The process of deleveraging by households and companies is now underway and this will weigh on spending for some time.”

On FinancialSense.com, market commentator wrote about the the failing pillars of the strengths in the stock market and economy in his editorial, And Then There Were None

• ... One by one the supposed pillars of strength to the stock market and economy are falling, along with it many widely held assumptions. We were exposed to many beliefs in 2007 as to why the stock market and economy would hold up as risks were downplayed and bullish theories were held as infallible truths. Below are some of the most widely held assumptions that have since proven overly optimistic... do read rest of his article here

Lastly here are some comments from CNBC's Bob Pisani on what has happened.

• Those of you who thought the "Obama bounce" would triumph over "the economy" or "profit taking" today must be rather unhappy.
  
  The average stock is down about 2.5 percent midday, with particularly weakness in some commodity and energy names. ArcelorMittal's announcement they would be cutting steel production is weighing on steel, iron ore, and coal companies.
  
  But it doesn't stop there: financials and pharma have been weak, and recently tech stocks have also moved down. House Speaker Nancy Pelosi, not surprisingly, threw her support behind an economic stimulus bill midday as well.
  
  Stocks have had a nice run in the past 7 trading days—the S&P is up about 15 percent from its lows last week. Many beaten up groups like REITs, retail, restaurants and hotels have had nice moves up.
  
  What the market is saying here is, not so fast. There is a ceiling on a market rally due to the horrible economic numbers. Most traders believe it is highly unlikely the S&P will close the year out near 1,200. The majority think we are likely to be slightly higher from current levels.
  
  As for the Obama bounce: most stocks that were supposed to benefit from his election (solar, hospitals, infrastructure) are also down today, in many cases just as much as stocks that were supposed to be hurt by his election (defense, pharma, big oil, tobacco). ( source: http://www.cnbc.com/id/27557316 )