False Recovery?

False Recovery?

More on economic prospects in a moment, but I want to get you while I have you. The stock market has made a comeback from its recent trough and that has inspired hope that the worst is behind us. (And there are a few hopeful signs–housing sales, for example, have slightly picked up, but more on this shortly.)

Ever wonder why Herbert Hoover was able to say "Prosperity is around the corner?" (I hope he said that since this is from memory.) I suspect that it was because a stock recovery appeared to be taking place. I found a month-by-month account of the Dow between 1929 and 1933. (The following are my approximations based on the chart I was reading–on a German web site (!): in late 1929 to about May 1930, the Dow rose about 40%; between July and October, the Dow rose about 9%. Plunging to new lows, the Dow then rose about 21% from the end of 1930 to about March 1931; again in May, 1931, it rose about 13% for two months. Near the end of 1931, it rose about 10% for about two months. It reached bottom in mid-1932 and rose erratically after that. The peak, in 1929 was about 385 and the trough was about 40.

While standard terms for the rallies are "false recovery" or "bear market rally," the one I like most is "dead cat bounce."