There should be more than a few answers provided to investors by the end of this week. Monday marks the start of the US earnings season and after the biggest rally in over 70 years, investors will now be able to tell if the earnings justify the stock prices.
Most traders will notice that the Dow is almost back at the 11 000 point level. Why this is so relevant is because that was roughly the level that preceded the Lehman Brothers crash. With stock markets back at these lofty levels, it might be worth traders and investors wondering if the good times are really back.
Here are a few interesting comparisons from those pre-Lehman days with today:
- The price of gold was trading at $900 per ounce vs $1 100
- Unemployment in the United States was only 6% and it is now closer to 10%
- The number of bankruptcies was 70% lower than it is today
- The JSE all-share index was trading at about 26 000 and is now closer to 30 000
- George Bush was still president
Heading in to last weekend there was plenty of perceived risk for investors to be concerned about.
There was continued concern about Greece and the potential default of theirs and other sovereign countries. Talk was also swirling around the corridors that China would finally allow the appreciation of their currency. Add the upcoming British election and the possibility of a hung Parliament, traders could be forgiven for feeling a little skittish.
Through all of this, it appears to be the returning optimism of the global recovery that has prompted the rebound in the equity markets. It looks like that at least in the near term, this rally could continue past the magic 11 000 level until all the sceptics have given up and maybe only then will this rally look viable. In the upcoming weeks however, the crystal ball will become a little clearer.
Nick Kunze is head of trading at BJM Private Client Services