Citigroup said they were profitable on an operating basis for the first two months of 2009. When a company that has been one of the biggest drags on the stock market has good news the bulls perk up and the short sellers get a little scared. The result was a broad rally in stocks which catapulted the S&P up 6.4% and the DOW 379 points. Barney Frank's comments about reinstating the uptick rule and Ben Bernanke's re insuring words also fueled investor excitement.
The powerful move in stocks is certainly being met with skepticism. Is this a bear rally or the beginning of a new bull market? Bull markets typically start 6-8 months before the economy bottoms. Unemployment is rising and corporate earnings are falling. Home prices continue to decline, commercial real estate is beginning to crack, and consumer credit is a looming problem. We don't think the economy will begin to show any positive signs until we reach into 2010. Hence, this is likely a bear market rally.
This short term rally could tack on 10-20% gains but will likely peter out as first quarter earnings season begins. Stocks need to adjust to a level that discounts economic realities. The markets have come down too far too fast so a bounce is warranted but an adjustment down will occur again before we begin the new bull run.
We will see what today brings and another few positive days in the market would be welcome but in the end, "It Is Still All About The Economy".
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