Yesterday the market just had its second largest up day ever; up 889 points. This rise came in spite of historical lows in the consumer confidence index (backward looking and volatile) and a nationwide drop in home prices of 16.6% (a real threat to the economy). The Fed is yet to weigh in with a rate cut which will almost certainly happen today. In the meantime, the Fed has increased the money supply by 25% in the last three weeks, a truly astonishing number. The rally occurred toward the end of the day, with banks stocks getting a big lift in the last two minutes of trading. No doubt this was short covering and therefore not a sustainable rally. Volume was very heavy (a good sign).
I do not know if this is the market bottom, although the October 13 bottom has now been tested twice and held both times. I frankly expect at least one more test of the bottom, and of course any more BIG bad news could send the market lower. (There is plenty of bad news in the market valuation already, news that a few weeks ago would have been considered big bad news, but has now become commonplace-the market has become inured to a degree).
As you know, we have maintained a defensive posture throughout this market, and outperformed the market, but a day with a rally such as this exposes the risks involved with such a strategy. We were up, but not as much as the market because of our defensive holdings.
October is frequently a bad month, and this one has been no exception, the government is now recognizing a recession (It will one day reveal that the recession started in January, but by then it won’t matter), so maybe we can get on with the healing process. It will take some time, but will come eventually.