Bottoms Up Or Sucker’s Rally?

Even before the final bell rang on Wednesday’s stunning rally, Wall Street watchers began debating the big question: Is the yearlong stock market slump finally over?

I believe the answer is a resounding yes — that is, as long as the Federal Reserve cuts interest rates by a half-point each day.

Barring that unlikely scenario, I’m afraid we’re still left with a slowing economy, too many bleeding Internet and tech companies, tight-fisted capital markets and lower consumer confidence. Not exactly ideal ingredients for a sustained recovery.

Still, it’s easy to understand why investors are hopeful that the worst days are behind us. Internet and tech stocks have gained in seven of the past nine trading sessions. Here are the figures for that period:

           4/18 Close   4/5 Close   % Gain         
Nasdaq      2079.44      1683.83     23.5%
ISDEX        243.70       162.31     50.1%

You can’t complain about those numbers. Remember, however, that as recently as January the market staged a rally that many thought was the long-anticipated turnaround. From Jan. 2 through Jan. 24, the Nasdaq surged to 2859 from 2291, a gain of 24.8%, while the’s Internet Stock Index, or ISDEX soared to 454 from 311, an advance of 46.0%.

Then, of course, the roof fell in on investors during the next 10 weeks. Indeed, even with the market’s impressive performance for most of the current month, stocks still are far below January’s highs, never mind the stratospheric levels achieved in March 2000, when the Nasdaq climbed over the 5000 mark.

Economists and analysts flocked to the airwaves Wednesday to offer vasty conflicting viewpoints about which way the market and economy are headed. No sooner had one talking head declared the Fed’s half-point interest rate cut the catalyst needed to break the back of the current slump, another would argue the move came too late to prevent a recession that has already begun.

On one station you’d see an economist proclaiming the advent of a bull market. On another you’d see a Wall Street expert warning of a “bear rally,” a brief upturn in the midst of a sharp, overall decline. One investment analyst termed it a “sucker’s rally.”

All of which must be very confusing to investors. Whom to believe? In the end, the best thing investors can do is to tune out the noise, watch the fundamentals — earnings trends, revenue growth, inventory, etc. — and believe their own eyes.

News Around the Web