Don’t Get Complacent: It’s Still A Bear Market

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At the first sign of strength, most investors become amnesiacs. They become so concerned with making money, or missing the chance to make up losses, that they rush into stocks at the very time they should be most cautious. Now, is a time for cautious optimism and multi-dimensional thinking.

– Steven Sears, “Don’t Forget the Hard Lessons of 2008” (subscription required), Barron’s Online, Monday January 5

Stocks have now rallied pretty powerfully from extreme panic and oversold levels. The S&P tacked on about 200 points from the intraday low on November 21st through the intraday high yesterday (January 6th) – a 25+% move. Correspondingly, stocks are starting to look more attractive and people are wanting to get back in. But don’t forget that this is still a bear market and a sustainable bull market will not begin until the economy bottoms and starts to improve.

We’re not there yet. For example, Intel (INTC) this morning lowered their 4th quarter outlook for the second time. From expectations of $10.1-$10.9 billion in revenue in their outlook from October 14th, they lowered it to $8.7-$9.3 billion on November 12th, and now they’ve lowered it again to $8.2 million. That represents a 23% decline in revenue from the year ago period when revenues came in at $10.7 billion. Clearly then, the economy is still worsening and not yet improving.

This rally can probably continue a bit more as investors pile in in response to rising stock prices, professionals start to call the bottom and optimism about the new administration reigns. But it won’t last. You’re being presented with an opportunity to get out before another leg down in what will continue to be a long and grinding bear market. Don’t get complacent. It’s still a bear market.

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