Selling Pressure Abates

A letter from Wall Street veteran Sydney Williams Wednesday mentioned that the trailing 10-year return for the S&P 500 was a negative 28%, not including dividends. I figured Sydney was right -- he usually is -- but I had to check, and, sure enough, he was correct. I looked back and found the 10 years ended 1974 produced a negative 19% (again ex-dividends), and the 10-year period ended 1938 was negative by 46%. That's the bad news.

The good news is that it's past us. I found a piece by Sam Stovall of Standard & Poor's in which he states that when a bear market has a reversal of 20% or more, it usually (but not always) marked the beginning of a new move upwards. As I mentioned in a previous piece, we have had a 24% bounce off the bottom. We also had a low in October that saw more than 90% of stocks hit yearly lows. That level was breached in November and we went a good bit lower but with far fewer stocks hitting new lows. That is, to me, a sure sign that selling pressure is abating.

I would like to think that we are at the start of something new and wonderful, but that is too much to hope for. In past recessions, lower interest rates led to credit expansion and eventual recovery. We have the lower rates. But we are not likely to expand private credit in a delevering economy. We have to hope government debt can substitute for private debt to restart the economy.

There are increasing signs things are loosening up. Jeff Stein of Soleil/Stein Research has been recommending Macy's (M - commentary - Cramer's Take) and has been insistent that the company's finances are in good shape. On Wednesday, Macy's announced it was able to modify its credit agreement, keeping the size ($2 billion) and the maturity date unchanged in return for minor pricing modifications.

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Vincent Farrell Jr. is chief investment officer for Soleil Securities Group and a regular guest on CNBC and other national print and broadcast media.

Prior to joining Soleil in August 2008, Farrell was a principal of Scotsman Capital Management. Before that, he was chairman of Victory Capital Management of Cleveland and chairman of Victory SBSF Capital Management in New York. He was a founding partner of Spears Benzak Salomon & Farrell, which was acquired by KeyCorp in 1995. Vince held a variety of positions in his 23 years at SBSF, including chief investment officer, and he served as the portfolio manager on a number of the firm's largest client relationships.

Prior to joining SBSF, Vince spent nine years at Smith Barney as a vice president, sales.

Vince graduated from Princeton University in 1969 and received his MBA from the Iona College Graduate School of Business in 1972.