The Bulls Come Charging Back

On a separate but related note, some observers are musing about the coming seasonal weakness for shares, highlighted by the old saw "Sell in May and go away."

From 1950 through 2002, the Dow posted cumulative losses of 361 points from May through October vs. gains of over 10,100 points from November through April, according to The Stock Traders Almanac. (Notably, Almanac publisher Jeffrey Hirsch cited this "Best Six Months" timing strategy in making a sell recommendation on April 11 -- prematurely, as it turned out.)

Not coincidentally to the market's historically desultory performance from May to October, those months also happen to be the "dead zone" for mutual fund inflows, according to Alan Newman, editor of Longboat Global Advisors' Crosscurrents.

Since 1984, 62% of all mutual fund inflows have incurred between November and April, with January and April alone responsible for 26.8% of all inflows, Newman reported Monday. In the bear market of 1966 to 1982 -- to which the newsletter writer compares the current environment -- monies invested solely in the May-to-October "dead zone" fell nearly 85% on an inflation-adjusted basis. "Consider that when the folks on Wall Street tell you to be invested all year round," he wrote.

Then again, this settlement is going to markedly increase the public's faith in what Wall Street says, right?

(More) Things That Make You Go ... Hmmm

The economic expansion officially ended and recession began in March 2001, according to the National Bureau of Economic Research. Many quibble with the NEBR's work -- notably, the group hasn't yet officially determined an end date to the recession, despite consistent, albeit modest, GDP growth last year and in the first quarter of 2002 -- but it is the nation's official arbiter of recessions and recoveries.

The salient point here is that 25 months after the recession officially began, the S&P 500 is down between 21% to 27%, depending upon when in March 2001 one starts measuring.

In the nine prior recessions since World War II, "not once was the equity market off" this long after the start of a recession, according to John Lonski, senior economist at Moody's. The median change this long after those prior recessions began is a gain of 16%.

Investors in those prior eras didn't have to deal with 9/11 and concerns about future terrorist attacks, as well as uncertainties leading up to war with Iraq. But investors in past recessions also didn't have to deal with the aftermath of the greatest equity bubble in American (some say world) history.

The difference in stock market performance between past recessions and the most recent one "indicates how overvalued equities became during the previous boom," Lonski said.

Just something else to contemplate as the market continues to produce bullish short-term signs, which inevitably lead to more "new bull market" chatter.

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