Outlook: The Bulls Return
IS THAT really the raging herd we see before us, or is it just another illusion? The usual stock market definition of a bear market is a fall of 20 per cent from the peak. Well, since the FTSE 100 bottomed out on 21 September, the stock market has risen by just over 20 per cent, which would, presumably, mark it out as a bull market. The definitions are completely meaningless, of course, since a fall of 20 per cent from the peak is always going to be a whole lot more than a rally of 20 per cent from the bottom. On average, for instance, technology shares have doubled since the bottom, but they are still 75 per cent down on their peak.
Even so, stock market rallies don't come much sharper than the one we're witnessing now, and it's begun to make many believe the bear market is finally over. Could they be right? There's a good case to be made for it. Relative to bonds, equities have rarely been cheaper, in the last forty years at least. With interest rates so low, and the yield on equities even after the rally still in excess of 3 per cent, shares look good value. Dividends should grow over time. With bonds you are stuck with the interest rate you buy in at.
Bear markets cannot go on forever, and this one has already been a long one by historic standards. This looks like being the second year of negative equity returns. More revealing still, the FTSE 100 is now about the same level as it was on the way up nearly four years ago. Ignoring dividends, we've thus had four years of nil return on equities.
Admittedly the story on corporate earnings continues to look problematic, but with the earnings downgrades seen through September and October, expectations seem finally to be coming into line with reality. Then there's the view, hard though it may be to believe, that the …
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Publication information: Article title: Outlook: The Bulls Return. Contributors: Not available. Newspaper title: The Independent (London, England). Publication date: November 2, 2001. Page number: 16. © 2009 The Independent - London. Provided by ProQuest LLC. All Rights Reserved.
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