The stock market: Will the bear reawaken?

Details of the U.S. government’s plans to help banks dump toxic assets delivered a dose of “desperately needed optimism” to Wall Street, said Ellis Mnyandu in Reuters. Over the course of just 10 trading sessions, the Standard & Poor’s 500 bounced 20 percent from its March 9 lows. That prompted speculation that the bear market was finally on its way out. “We think there is a very good chance that the lows are in place for the stock market,” says Bruce Bittles, chief investment strategist at Robert W. Baird & Co in Nashville. Then again, more bad economic news could quickly thwart any such recovery, in which case the “recent spurt of gains could yet again be another false dawn.”

Bull markets typically begin about five months before the economy bottoms out, said Steven Goldberg in Kiplinger.com. In fact, the market may continue to rally even in the face of bad economic news, according to Jim Stack, publisher of InvesTech Research and a longtime bear who sees “classic signs” that the market is about to turn the corner, even if the economy itself isn’t. Among other things, we’ve already experienced “all the extremes in pessimism that typically accompany a bear-market bottom,” he says. Many stocks are starting to look like bargains compared with their historical averages, “whether you consider price-to-cash flow, price-to-book value, price-to-sales ratio, or dividend yield.” When will Stack officially turn bullish? When he sees a “dramatic drop” in the number of stocks hitting new 52-week lows. “Once everyone who wants to sell has sold, then pressure dries up,” he says.

Don’t assume that the climb back up will be quick and easy, said Paul Lim in The New York Times. Where recessions in the 1980s and 1990s were short-lived, this one is already a year and a half old, and any recovery could be a long, slow slog. Even if the stock market enjoys an initial bump and then gains 10 percent annually—an optimistic expectation in any case—it could still take years to return to its former glory. Annual returns of about 8.5 percent are more realistic, says Research Affiliates Chairman Robert Arnott. “Single-digit stock returns may not seem all that thrilling, compared with the huge numbers posted during the bull market of the ’90s.” But, hey, it’s better than double-digit losses.