One of the common adages of investing is that market tops are developments and market bottoms are events. If Tuesday’s nearly 6 per cent Dow spike and 7 per cent NASDAQ climbs are any indication, the “big event” may have occurred Monday when the Dow dropped to 6,547. But was it really the bottom?

Many analysts have begun speculating that the equities markets have already overly accounted for the negativity in the economy. The Dow has dropped nearly 8,000 points since its high in late 2007. Because of the powerful decline, much of which has taken place in just the last several months, some are beginning to call for sharp recoil whenever a major development happens in any of the most stricken market sectors.

Tuesday, Citi generated at least a short-term recoil, or bounce, when it surprisingly announced that it had operated with a profit during the first two months of the year. For a down and out creditor, this was amazing news to investors who have given up hope on the sector.

Just late last week, Citi was in the news for its dip below the $1 per share price point for its stock. Prior to the reversal of a delisting rule by the New York Stock Exchange that loosens restrictions on stocks that fall below $1, there was some concern the company could lose its place on the exchange in the future. Instead, the company gained 38 per cent after the announcement to a close of $1.45, and another $.13 in after-hours trading to $1.58.

Tuesday’s 380 point Dow gain was certainly impressive. Within a matter of minutes of the opening bell, the market was up over 3 per cent. As the day progressed, the increase climbed to 4 per cent, then well over 5 per cent with a final thrust late in the day. This marked the biggest daily gain for stocks in 2009 and shows just how much impact even one sign of hope can have in such a volatile and discounted stock environment.

Of course, the cautious analysts were quick to point out that one day’s gains do not make a trend. It will likely take several days of back to back gains, something that has not happened for several weeks, to really get the market excited. Once the move happens, though, it could be swift and powerful, just as the fall has been.

Ultimately, it will take a turnaround in economic data to convince Americans that the worst is behind us. Fed Chief Ben Bernanke called for a regulatory overhaul in the banking sector to prevent future catastrophes like the one going on now. This is now the longest recession for the US in over 25 years. Bernanke did say that if financial markets are stimulated, there is a “good chance” the recession could end by the end of 2009. His optimism also added to that of already gleeful investors.

Wednesday should be a quick indicator of how the market accepts Tuesday’s move. If it was indeed a false bounce based on over hype of the Citi news than an immediate turn back is likely. However, is the market truly is more optimistic, a follow up move would be a telltale sign. Regardless, there has to be some better data in housing, jobs, and unemployment at some point for any upwards movement to continue.

Neil Kokemuller
9:40 PM EST
Tuesday, March 10, 2009

Neil Kokemuller is an Associate Professor of Marketing at Des Moines Area Community College in Des Moines, Iowa, USA. He has a MBA from Iowa State University.
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