By: Larry MacDonald
Legg Mason’s David Nelson believes the U.S. stock market bottomed on July 15, just before U.S. financial stocks blasted upward by 30% in a little over a week. “We believe there is a reasonable argument to be made that July 15 marked an important low point ….” he wrote in his latest monthly commentary.
Nelson, who is chairman of the Investment Policy Committee for Legg Mason Capital Management, thinks the bottom is in place because sentiment has reached a degree of negativity that in the past signaled a turnaround in the stock market. Earlier this summer, more than half of the persons polled in a Conference Board survey revealed they thought stock prices would decline this year. The percentage has never been as high since the survey began in 1987.
“Only six times . . . have 36% or more of respondents said they expected declines in the coming year,” reported Nelson. “In every case, the stock market confounded expectations by rising in the next year instead of falling . . . . The average gain of the six was +20.5%.”
6 Responses to “ Stock market bottom? ”
One more contrary indicator is the amount of cash flowing into money market funds. Predictably, this cash will move into the stock market, after stocks have gone up. Some things never change.
By Canadian Capitalist on Sep 2, 2008
Good luck with that theory.
The US is basically insolvent, and closer to a depression than ever. It will be interesting to see how the market will react when the Tax payers get put on the hook for Freddie and Fannie next week.
Aside from polls of people’s psychological sentiment, it would be wiser to look at fundamentals. Bull markets can only ignore them for so long. After that, fundamentals kick in and the bear market takes over. The correction is barely 1/3 of the way done, and the US will be lucky to escape a depression in the next 3-5 years.
Bear markets are highly volitile. Going up 30% in a short period of time is no indicator for a market bottom. Watch it go down 40% in the last 2 quarters of 2009 and we’ll see who’s right. Sept & Oct are historically the WORST times to invest in the stock market.
That falling oil price is an indicator a recession is around the corner. Why else would oil prices fall after peak oil has been confirmed?
Calling a stock market bottom? I think if you follow that ridiculous advice, you’ll end up with bleeding hands from all the ‘falling knives’.
By GoodLuckWithThatTheory on Sep 6, 2008
That should have read “… in the last 2 quarters of 2008″ (not 2009)
By GoodLuckWithThatTheory on Sep 6, 2008
The Legg Mason family of funds, along with their “star” manager Bill MIller have been bullish ever since the first dip in the market. They’re taking a beating as a result and one wonders if the brand will survive.
LM
By Larry MacDonald on Sep 6, 2008
Bill Mason’s funds doesn’t have a lot of positive momentum going for them. He saw his 1st loss in many years in 2007 and I wouldn’t be surprised if he has another loss in 2008. Be wary of his remarks.
By Paul on Sep 7, 2008