It’s not the latest Halloween ritual (sorry, couldn’t resist), but rather the basic choice every investor, corporate executive, analyst must make in forecasting what’s most likely to come next.
If you had been paying attention in March, you could have made 48.2% since then on your investment in the DJIA index. If you did, congratulations—but don’t spend the money just yet.
With some of the world’s major stock markets up by over 50% in six months, it’s clear some kind of serious rally is under way. But is it a trend—a genuine rally that signals a bottom, and an end to this long recession? Or is it just a tick—a “sucker’s rally” that gives everyone false hopes before plunging us to even greater depths?
So far, in some respects the stock market is behaving like it did during 1929-30. In the figure below, you see where we are now compared to where “we” were in 1930. (The numbers are accurate, however the timelines are not drawn to scale.) Then, as now, we lost about 50%, then in short order gained about 50%. (Note to poets: This does NOT put us back to where we were, but rather at 75% of that.)
Now some are forecasting that the next bull market is already under way, and that DJIA will double from here, putting it well over 25,000. That the recovery, in other words, will be V-shaped, as shown by the dotted gray line.