Where’s the Party?

Bull Markets Climb a Wall of Worry

The surge in stock prices around the world in the first quarter serves as a reminder that predicting market trends can be a frustrating business. Six months ago, the outlook for stock prices appeared to be fading from grim to grimmer: Congressional leaders were wrangling unsuccessfully to craft a deficit reduction plan, Standard & Poor’s had removed its AAA rating on US Treasury obligations, and Greece appeared one step away from defaulting on its debt. Yet just when many investors least expected it, stocks staged a powerful rally: From the low for the year on October 3, the S&P 500 Index rebounded 28.1% through March 30 while the Russell 2000 Index jumped 36.2%. As the news excerpts below suggest, it is worth recalling the Wall Street adage that “bull markets climb a wall of worry.”

  • August 5, 2011—S&P downgrades US Treasury debt to AA+ from AAA; stocks plunge in the biggest selloff since 2008.
  • September 3, 2011—Journalist: “The US economy slammed into a wall in August, failing to add new jobs for the first time in nearly a year.”
  • September 5, 2011—Gold reaches a record high of $1,895 per oz. (London Fix).
  • September 19, 2011—Wall Street chief equity strategist: “I don’t think we’ve seen the lows for the year by any stretch. Things have to get much worse before they get better.”
  • September 23, 2011—Journalist: “The world economy once again stands on a precipice.”
  • September 26, 2011—Investor: “I don’t see anything changing in the next two or three years.”
  • October 1, 2011—Economist cover story: “Unless politicians act more boldly, the world economy will keep heading towards a black hole.”
  • October 3, 2011—US stock prices slump to their lows of the year: 1099.23 for the S&P 500 and 609.49 for the Russell 2000 Index.
  • October 13, 2011—Census Bureau reports the weakest income growth over a ten-year period since records began in 1967.
  • October 20, 2011—Col. Muammar el-Qaddafi killed by Libyan rebel forces.
  • November 20, 2011—Consumer goods CEO: “Consumers everywhere continue to be cautious and hesitant to spend.”
  • November 21, 2011—US Congressional “supercommittee” fails to reach deficit reduction agreement.
  • November 24, 2011—Market strategist: “Earnings growth is very quickly decelerating.”
  • November 28, 2011—Moody’s Investors Service warns that multiple countries could default on their debt.
  • November 29, 2011—AMR Corp., parent of American Airlines, files for bankruptcy.
  • December 10, 2011—Detroit’s mayor predicts the city will run out of cash by April 2012.
  • January 6, 2012—Gasoline prices are at the highest point ever for a new year.
  • January 18, 2012—World Bank: “Developed and developing-country growth rates could fall by as much or more than in 2008–09.”
  • January 18, 2012—Eastman Kodak files for bankruptcy.
  • January 25, 2012—Report from Davos World Economic Forum: “Global elite fears renewed downturn.”
  • February 13, 2012—Journalist: “There is still plenty that could go wrong in Europe, while U.S. economic growth remains slow and corporate earnings are looking less and less robust.”
  • February 27, 2012—Money manager: “This is a business-as-usual overpriced market and you’ll get a zero return for seven years.”
  • March 2, 2012—Eurostat reports that Eurozone unemployment in January reached 10.7%, the highest in fifteen years.
  • March 12, 2012—Strategist: “The stock market has effectively doubled since the March ‘09 low, and we’re still in redemption territory for equity funds.”
  • March 19, 2012—Journalist: “Expectations for earnings have been steadily scaled back this year, as the mood among companies has worsened.”