From FM to AM, the boob tube to the youtube, one message is coming through the mainstream financial satellites loud and clear: The U.S. stock market's "dead cat bounce" off its 2009 low has turned into a heart-pounding puma with claws out to tear any bear apart in its tracks.
To wit: From its infamous early March 2009 nadir below 6500, the Dow Jones Industrial Average has soared 89%, while the S&P 500 has enjoyed its fastest doubling in its entire 57-year creation. And, as far as many experts can see, the current run-up is equivalent to one specific period in stock market history: the game-changing rally off the 1932 low. On this, the following excerpt from a February 16 Fortune article fills in the analogy:
"The scale of the rally is enormous. We haven't seen anything like the surge since the Great Depression bounce backs of 1932 and 1935."
In other words, the U.S. stock market is repeating its 1932 performance, having put the misery of the 2007/1929 crash behind and embarking on a new bull trend.
The implications of the comparison are so huge, that EWI president Robert Prechter devotes the entire issue of his brand-new February 2011 Elliott Wave Theorist, to weighing the bull/bear evidence.
In Bob's own words: "I wanted you to see the evidence so you can make up your own mind."
While the "speed" of the advance in stocks today is indeed similar to that of 1932, one of the most striking differences, observes Prechter, is that investor sentiment in 1932-3 was the polar opposite of today. Back then, widespread pessimism had calcified into a solid and impenetrable mistrust of any market rallies -- as these headlines from the time make plain:
- "Continuation Of Depression Seen By Fund Demands" (December 2, 1932 Herald-Journal)
- "Eat, Drink, And Be Merry. Let us live now and enjoy it. Tomorrow we may be run down by a trolley car." (March 7, 1933 New York Times)
- "In regard to the stock market, let us sound a little note of caution. People purchasing securities at these levels are just 'kidding' themselves from the long-term outlook." (April 20, 1933 Rochester Evening Journal)
As for today: The only "caution" seen on Wall Street in regard to stocks is for NOT investing enough. On page 7 of the February 2011 Theorist, Bob presents an eye-opening chart of the DJIA versus two major sentiment indicators that reveals how investors and advisors are more bullish today than at the 2007 peak. Here again, the rosy news items below stand in stark contrast to those from 1932-3:
- "There's a case to be made that shares won't stop rising anytime soon." (February 22, 2011 TIME) -- AND --
- "Stocks For The Long Run. There's nothing but upside to come." (February 4, 2011 Reuters)
Another piece of evidence that betrays a glaring difference between the 2009 and 1932 lows are dividend yields. Since... well, forever, investors accept low dividends at market tops in the belief that stocks have much higher up to go. The opposite holds true near bottoms, when investors demand high dividends to offset the perceived risk in stocks.
In his 2002 NY Times business bestseller Conquer the Crash, Prechter reinforced this discovery via the following close-up of the DJIA versus dividend yields from 1915-2000:
In 1932, the dividend yield was over 15%. Prechter reveals in the February 2011 Theorist what the Dow's current annual dividend yield is.