Continuing stock rally lifts S&P 500 29.7% from March 9th low

In the first week of March of this year, millions of Americans opened their February statements, saw that their accounts were down another 20% on the year after falling 38% in 2008, and sold out their stocks for good.  Through March 9th, the S&P 500 fell another 8%, leaving the S&P 500 down a sickening 57% from the October 2007 high - the steepest decline in stock prices since 1929-32.  Unfortunately for those Americans who sold, March 9th marked not only the low for the current bear market, but the lowest price for stocks in 13 years.  Through May 1st, stocks rallied 30% in one of the steepest rallies ever for US stocks.

The S&P 500 still remains down 2.8% for the year and down 43.9% from the high.  However, the NASDAQ is up 15.5% YTD as technology stocks soar 17.6%.  Materials stocks are up 13.2%, and consumer discretionary stocks are up 8.3%.  These sectors typically rally ahead of economic growth, which means that more and more investors are anticipating the end of the recession.  We note that emerging stocks markets are particularly bullish - China up 50.0% YTD, India up 15.3% and Brazil up 25.9%.  Those economies were not particularly damaged by the financial meltdown that swamped the US and Europe.  Hundreds of millions of consumers in those countries moved into the middle class earlier this decade, driving current economic growth for those countries and ultimately for the world.

Sustainable rise or bear market "trap?"

The S&P 500 rallied 7 of the last 8 weeks, and the NASDAQ gained in 8 out of 8 weeks, the best "streak" this century.  The one month gain of 9.4% and two month gain of 18.7% are consistent with rallies we've seen at the end of previous bear markets.  However, the current rally is almost universally derided as a bear market "trap," which entices investors to invest in stocks, only to dash their hopes weeks later.

Read the entire commentary here.