Weston Wellington

Vice President

Dimensional Fund Advisors

 

The surge in stock prices around the world in the first quarter serves as a reminder that predicting market trends can be a frustrating business. Six months ago, the outlook for stock prices appeared to be fading from grim to grimmer: Congressional leaders were wrangling unsuccessfully to craft a deficit reduction plan, Standard & Poor’s had removed its AAA rating on US Treasury obligations, and Greece appeared one step away from defaulting on its debt. Yet just when many investors least expected it, stocks staged a powerful rally: From the low for the year on October 3, the S&P 500 Index rebounded 28.1% through March 30 while the Russell 2000 Index jumped 36.2%. As the news excerpts below suggest, it is worth recalling the Wall Street adage that "bull markets climb a wall of worry."

 

  • August 5, 2011—S&P downgrades US Treasury debt to AA+ from AAA; stocks plunge in the biggest selloff since 2008.
  • September 3, 2011—Journalist: "The US economy slammed into a wall in August, failing to add new jobs for the first time in nearly a year."
  • September 5, 2011—Gold reaches a record high of $1,895 per oz. (London Fix).
  • September 19, 2011—Wall Street chief equity strategist: "I don’t think we’ve seen the lows for the year by any stretch. Things have to get much worse before they get better."
  • September 23, 2011—Journalist: "The world economy once again stands on a precipice."
  • September 26, 2011—Investor: "I don’t see anything changing in the next two or three years."
  • October 1, 2011—Economist cover story: "Unless politicians act more boldly, the world economy will keep heading towards a black hole."
  • October 3, 2011—US stock prices slump to their lows of the year: 1099.23 for the S&P 500 and 609.49 for the Russell 2000 Index.
  • October 13, 2011—Census Bureau reports the weakest income growth over a ten-year period since records began in 1967.
  • October 20, 2011—Col. Muammar el-Qaddafi killed by Libyan rebel forces.
  • November 20, 2011—Consumer goods CEO: "Consumers everywhere continue to be cautious and hesitant to spend."
  • November 21, 2011—US Congressional "supercommittee" fails to reach deficit reduction agreement.
  • November 24, 2011—Market strategist: "Earnings growth is very quickly decelerating."
  • November 28, 2011—Moody’s Investors Service warns that multiple countries could default on their debt.
  • November 29, 2011—AMR Corp., parent of American Airlines, files for bankruptcy.
  • December 10, 2011—Detroit’s mayor predicts the city will run out of cash by April 2012.
  • January 6, 2012—Gasoline prices are at the highest point ever for a new year.
  • January 18, 2012—World Bank: "Developed and developing-country growth rates could fall by as much or more than in 2008–09."
  • January 18, 2012—Eastman Kodak files for bankruptcy.
  • January 25, 2012—Report from Davos World Economic Forum: "Global elite fears renewed downturn."
  • February 13, 2012—Journalist: "There is still plenty that could go wrong in Europe, while U.S. economic growth remains slow and corporate earnings are looking less and less robust."
  • February 27, 2012—Money manager: "This is a business-as-usual overpriced market and you’ll get a zero return for seven years."
  • March 2, 2012—Eurostat reports that Eurozone unemployment in January reached 10.7%, the highest in fifteen years.
  • March 12, 2012—Strategist: "The stock market has effectively doubled since the March ‘09 low, and we’re still in redemption territory for equity funds."
  • March 19, 2012—Journalist: "Expectations for earnings have been steadily scaled back this year, as the mood among companies has worsened

 

References

 

  • E.S. Browning, "Downgrade Ignites a Global Selloff," Wall Street Journal, August 9, 2011.
  • Sudeep Reddy, "Job Growth Grinds to a Halt," Wall Street Journal, September 3, 2011.
  • Quotation from Adam Parker, chief US equity strategist Morgan Stanley. Jonathan Cheng, "Wall Street’s Optimism Fades," Wall Street Journal, September 19, 2011.
  • Chris Giles, "Financial Institutions Stare into the Abyss," Financial Times, September 22, 2011.
  • Tom Lauricella, "Pivot Point: Investors Lose Faith in Stocks," Wall Street Journal, September 26, 2011.
  • "Be Afraid," Economist, October 1, 2011.
  • Phil Izzo, "Bleak News for Americans’ Income," Wall Street Journal, October 13, 2011.
  • Kareem Fahim, "Qaddafi, Seized by Foes, Meets a Violent End," New York Times, October 21, 2011.
  • Quotation from Jim Skinner, chief executive of McDonald’s. Jeff Sommer, "From the Mouths of Executives, Little Comfort," New York Times, November 20, 2011.
  • Jonathan Cheng and Brendan Conway, "Panel’s Failure Sinks Stocks," Wall Street Journal, November 21, 2011.
  • Quotation from David Rosenberg, chief market strategist, Gluskin Sheff & Associates. Tom Petruno, "Wall Street Gets Cautious on Earnings," Los Angeles Times, November 24, 2011.
  • Brendan Conway and Steven Russolillo, "No Year-End Stock Surge in Sight," Wall Street Journal, November 26, 2011.
  • Liz Alderman and Stephen Castle, "Dire Warnings Are Building on European Debt Crisis," New York Times, November 29, 2011.
  • "Nowhere to Run—The Motor City Flirts with Fiscal Disaster," Economist, December 10, 2011.
  • Ronald D. White, "Gas Prices Ring in 2012 at a High," Los Angeles Times, January 6, 2012.
  • Chris Giles, "World Bank Warns on the Risk of Global Economic Meltdown," Financial Times, January 18, 2012.
  • Chris Giles, "Pessimism Hangs in Mountain Air," Financial Times, January 25, 2012.
  • Tom Lauricella and Jonathan Cheng, "Too Late to Jump Aboard?" Wall Street Journal, February 13, 2012.
  • Ajay Makan, "S&P 500 at Post-Crisis Peak but Investors Remain Wary," Financial Times, February 25, 2012.
  • Quotation from Jeremy Grantham, chief investment strategist, GMO. Leslie P. Norton, "Not So fast: Coping with Slow Growth," Barron’s, February 27, 2012.
  • Brian Blackstone, "Poor Economic Data Slam Europe," Wall Street Journal, March 2, 2012.
  • Quotation from Liz Ann Sonders, chief investment strategist, Charles Schwab. Nikolaj Gammeltoft, Inyoun Hwang, and Whitney Kisling, "The Bull Turns Three. Where’s the Party?"
  • BusinessWeek, March 12, 2012.
  • Ajay Makan, "Wall Street Braces For Hit to Soaring Markets," Financial Times, March 19, 2012.