The Mother of Bear Rallies: Obama effect to rally Stock Markets?

The Mother of Bear Rallies: Obama Effect to rally Stock Markets?

Wall Street rallied today in a dazzling return of investor confidence only a day after US financials were slaughtered.

The Dow Jones gained 279.01 point (3.51%), the S&P 500 35.02 points (4.35%), and the Nasdaq was up 66.21 points. (4.60%).

Marketwatch makes and interesting point with Jeffrey Kleintop, chief market strategist, LPL Financial, as saying:

But some analysts see silver linings in President Barack Obama’s economic stimulus plans, saying the new administration’s proposals are reminiscent of those in play in March 1933, when Franklin Delano Roosevelt took office at the height of the Great Depression.

“The most significant piece of legislation in the next few weeks will be the fiscal stimulus program. It may bolster confidence in the economy and markets or it may fall short and disappoint the market by not being put to work quickly enough,” said Jeffrey Kleintop, chief market strategist, LPL Financial.

During the first 100 days of FDR’s term, the stock market climbed about 80%. Whether history repeats itself remains to be seen. “Uncertainty and potential for negative unintended consequences of the policy actions may weigh on the market,” said Kleintop.

In which case, we could be looking at a much more positive few weeks or even months, as enthusiasm for the US stimulus plan becomes feverish – after all, Barack Obama is a strong charismatic character who has projected a professional and intelligent business approach to addressing the economic crisis.

As he warns, though, this isn’t about stopping the crisis, as much as stopping it becoming the mother of all crisis.

In that regard, today’s boost on the US stock markets may become seen as the mother of all bear rallies, with major gains to be had.

This is likely to positively impact the FTSE 100 while investor confidence can be maintained.

I was speaking to a stockbroker, specialised in technical analyses, and he pointed out a chart showing that on a 200-day average, stocks definitely appear oversold, allowing for a significant bounce back.

But he also pulled up a chart of the S%P 500 showing that the whole index is falling off a precipice.

In other words, no matter what excitement investors may show over the next few weeks and months, the underlying economic data remains terrible – the US and UK are consumer-driven economies, and there’s nothing driving consumer spending at present. In fact, massive layoffs and unemployment indicate a significant constriction, with further concerns that the lack of bank lending to business will amplify the problem.

Even still, this is a moment investors can use to their advantage to re-organise portfolios and set up minimised risk profiles.

For example, I personally have a few thousand shares in RBS, and while I think the bank cannot be nationalised by the government because of the massive economic damage taking on that banks debt would do, it still remains a risky stock to hold too much of.

While I’m happy to hold onto some, I avoided the panic selling that would have left me selling at 10.8p earlier in the week, incurring significant losses. If the markets do continue to rally, then I can sell off some RBS shares at a more reasonable price once the price rises to lessen my portfolio’s risk profile. I’ll still be holding some – after all, what is any investor’s portfolio with some seemingly higher risk holdings?

For new investors, this rally could be an opportunity to ride the wave for a while and profit from it – for existing investors, an opportunity to reorganise. For the daring, a chance to widen exposure to financials which could be otherwise seen as high-risk in the short-term, but big-gainers in the long-term.

There’s no illusion here – the US recession could easily become a depression. The UK is likely to suffer more from ailing economic indicators.

But for investors, the moment may yet have arrived to pause and gain a little breath after so many months of stock price falls, restructure battered portfolios into something more robust, and steel themselves for come what may.


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  1. Barack has some serious work ahead of him. I can’t imagine there is any simple solution for him in the near future.