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.”
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About the Author:
Weston J. Wellington, a vice president with Dimensional, is another of the firm’s in-house research experts. He works closely with financial advisors in the US, Canada, Europe, Australia, and Latin America, showing them how a science-based “equilibrium” strategy is the most reliable way to achieve investment success and why their clients are unlikely to hear about this approach from the usual sources of financial advice.
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.
