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2008, While Devastatingly Painful Overall, Finishes Strong

Has anyone noticed that the markets have rebounded quite significantly over the past five weeks? Using the S&P 500 market low reached on November 21, 2008 of 755.84 and the S&P 500 market close on December 31, 2008 of 890.59, the market has increased by 17.83% over this timeframe. While this only puts a slight dent into the overall loss of the S&P 500 for the year that closed 2008 with an annual loss of 38.5%, it could represent the start of a very encouraging trend towards a market rebound … or does it?

I believe that the lows reached in the market at the end of November will likely mark the bottom of this particular bear market and that the ensuing correction likely started thereafter. However, this does not necessarily mean that we are out of the woods just yet and that the days of heightened volatility are behind us. The likely reality is quite the contrary in fact. With the transfer of power taking place in Washington, the bleak outlook for employment (CNNMoney.com reported recently that UCLA’s Anderson School of Management is forecasting a loss of 2,000,000 jobs in 2009 with the national unemployment rate rising to 8.5%), eroding consumer confidence and globally frozen credit markets that are just beginning to thaw, much uncertainty remains for 2009 and the markets generally do not like uncertainty. For these reasons I am not overly optimistic about the prospects for U.S. growth in 2009 and the global recession is likely to worsen during the year. However, the global equity markets seemed poised to mount a recovery in 2009 or, perhaps, continue to build upon the recovery that started in December of 2008.

I still believe that the markets will recover before the economy does and those investors who wait for the economy to recover before they invest in the equity markets, on a diversified basis, may miss a significant part of the market correction.