Courtesy of Andrew Garthwaite and team at Credit Suisse.
The Great Depression:
And the Great Recession:
So far in this bear market, bear market rallies have been just 14% (with the largest being 24%). In 1930’s average bear market rally was 30% (with one of 50%). From last weeks low, market is up 12%. So the bounce so far is muted.
And that’s because only three of Garthwaite’s five “bear market rally indicators” are green – these being very high cash levels, a tentative trough in some lead US economic indicators and an improvement in credit markets.
The other two green lights, in case you are wondering, are investors’ capitulation and a peak in existing home inventories.
So bottom line we think this rally could easily end up being another 10%, but to get the full 30% bear market rally (let alone 50%) is unlikely as we did not have all 5 indicators flashing green.
Indeed, the S&P 500 pushed on again last night, rising a further 3.2 per cent to 778.12, while the Dow added 2.5 per cent to 7,395.
Enjoy the fun while it lasts.
Bear market rallies – FT Alphaville