Marketplace Scratch Pad

A left toin at Albuqoique?

Scott Jagow May 18, 2009

Stocks are up strongly again today, which makes me think of Bugs Bunny. Remember the episode where Bugs is trying to dig his way to a carrot festival and instead he pops up in the middle of a bull fight?

By the most common definition (a 20% gain off of a market low), Wall Street is back in bull territory. Stocks are up 25-30% since March lows. But everyone’s dying to know — are we on our way to the carrot festival or is this just a brief tussle with the bull?

I have no idea. But I do know that corporate profits are the key. Lowe’s earnings are one reason being cited for today’s rally. Lowe’s profits fell last quarter, but they were better-than expected. Yeah, that old line. Things are less bad. Here’s how one analyst characterized the news:

“Lowe’s numbers come at a time when the market is looking to rebound. It does show that consumer spending in general has been a bit stronger than many had anticipated,” said Steve Goldman, market strategist at Weeden & Co in Greenwich, Connecticut. “Stocks tend to react with a very sharp rally six months before the recession ends. Hopefully what we are basing this investment on does materialize.”

But there’s enough skepticism out there to give one pause. The New York Times Dealbook wonders whether this is a bull rally within what’s called a “secular” bear market. Those last for years:

That would not be cause for much celebration. It would mean that stocks might be stuck at current levels or even resume their downward spiral, Mr. Lim says.

Liz Ann Sonders, chief investment strategist at Charles Schwab, says she is inclined to take this view. While she thinks that the cyclical bear market that began in 2007 is over, she said, “I’m still slightly leaning toward thinking that we are still in a secular bear.”

And then there’s the chart I pointed out this morning. Again, corporate profits. For S and P 500 companies, real earnings have dropped to a record low. Profits for those companies are down 90% the past 20 months, making the historical chart look like this:

If the fundamentals aren’t there to support this rally, a lot of investors will feel like they just got smacked around by Bugs Bunny.

What a gulli-bull. What a nin-cow-poop. What a maroon.

What do you think this rally is? I mean, eh, what’s up doc?

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