That Elusive Market Bottom

BlackRock's Bob Doll points out that "high-profile financial failures," such as what's happening with Bear Stearns, often coincide with market bottoms (boldface is mine):

From an equity markets perspective, investors continue to ask whether we are in the midst of a bottoming process or whether the floor of the markets is about to collapse. Unfortunately, there is no hard and fast way to identify a market bottom. Our best guess is that we are nearing bottom rather than beginning a more significant collapse, and that we are not that far from the bottom. Historical precedent shows that a series of explosive daily moves seems to be the norm for a bear phase to end, and that such moves are necessary prerequisites for allowing the markets to regain their footing. Additionally, we would point out that high-profile financial failures (such as that which has just occurred with Bear Stearns) are often coincident with market bottoms. As such, we believe the market will eventually change direction and tone, although we recognize that this will not happen immediately.

Citigroup says that bottom could be in the neighborhood of 1165 for the S&P 500 index, or 8.3 percent lower than the troughs seen so far. But think of the upside: The typical post-bear-market rally has been almost 42.5 percent, on average, says Citi, and "various metrics would support a better than 20 percent recovery from current levels over the next 12 months."

Tags: recession | stock market | Bear Stearns

Tools: Share | | Comments (4)

Reader Comments