Timing is everything, John Authers reminds us in his Short View column on Tuesday. Had you bought the S&P 500 at 1pm on August 16, when stocks were capitulating amid a full-blown crisis in the money markets, you would have made an 8 per cent profit by the end of last week. Had you bought the UK’s FTSE 100 before the market opened on Friday August 17, you would have made 8 per cent within four trading days.But, if you had delayed buying by a few hours, until just after news that the Fed was cutting its discount rate, your profit on the S&P would be only 2 per cent (2.5 per cent for the FTSE). And if you had bought at lunchtime in New York on Wednesday August 15, immediately before the S&P started its capitulation sell-off, you would have made only 2.7 per cent, on either the FTSE or the S&P.So, is stocks’ recovery a mere “bounce back” from plainly panicked selling, combined with a successful second-guessing of the Fed? Or is it the beginning of a sustained rally?, asks Authers.With Monday’s further recovery on money markets, bringing yields on short-dated Treasury bills almost back to their levels before the liquidity scare began, “it is tempting to conclude the episode is over,” he notes.

Consider the following, however:

The stocks that fell most after the market topped on July 19, and recovered most last week, were in the materials sector. These had been performing best – but had no direct exposure to a credit crunch. The Brazilian mining group CVRD – not a subprime lender – gained 93 per cent for the year, fell 28 per cent, and then bounced back 25 per cent. This suggests a panic – or flight from risk – not a response to fundamentals.

But bears can point to 1998, when the Russian default crisis was followed by the LTCM collapse, says Authers, concluding: “Stocks rose after the Russian panic, but plummeted once more on the news of the collateral damage caused by the first crisis. Many believe the market remains vulnerable to bad news on the fall-out from the credit crunch and 1998 is their template.”