Thursday, October 13, 2011

Stocks Do A Three Year Round Trip

Last week, on October 3, the S&P 500 closed at exactly the same level that it closed on October 3 three years ago: 1099.23.

As John Authers noted in his column in the Financial Times last weekend:

"Buy and hold" investors in US stocks had spent three of the most exciting years in financial history getting back to exactly where they started...

Stocks have endured a lost decade. And looking just at the past three years, all the gyrations since then have left us exactly where we were only three weeks after the fall of Lehman Brothers.

No wonder investors are discouraged.

The question is whether the period going forward will be any different than the fall of 2008, when stocks started the swan dive that did not end until March 2009.

I think it will be, although there is still the possibility of a negative political "surprise" from either Europe or Washington.

Unlike the fall of 2008, when the credit markets were virtually shut, corporate America is flush with cash, and credit is widely available for most credit-worthy borrowers. In addition, most corporations report that business trends remain favorable, although corporate CEO's have been very careful in their expansion plans.

Economic data also suggests an economy that is expanding, albeit at a tepid pace. Last Friday's non-farm payroll report, for example, indicated an economy that was adding jobs at a rate faster than most economists had predicted.

Still, stocks are searching for the catalyst that will restore a sustainable rally, and that seems to be lacking at this point.