Say what you will about it, but this is one Hell of a rally!
After a very low-volume sell-off to close the year, we are now up about 7.5% since New Year's Eve and January ends on Thursday and could be one of the all-time great starts to a year if we hold it together for 4 more days.
On Thursday, the Wilshire 5000 stock index, the USA's broadest market gauge, which includes almost 3,700 stocks, briefly topped its Oct. 9, 2007, record high of 15,806.69 before closing 21 points shy of a historic peak. Since the bear market ended in March 2009, stocks have generated paper gains of nearly $11 trillion, says Wilshire Associates. The Dow Jones industrial average and Standard & Poor's 500 stock index are just 2.4% and 4.5% below their respective peaks.
In Member Chat this morning, we discussed "The Mothers," the Japanese index of small-cap stocks, which have launched like a rocket from just over 400 at the end of December to just under 550 last week – an unbelievable (and unsustainable?) 37% run in 30 days. To some extent, this Global re-pricing of equities simply reflects a waning of the crisis mentality we've had for the past 4 years – keeping prices depressed in what should be a forward-pricing mechanism. As the massive volume of free money pumped out by the Central Banks finally begins to circulate through the economy – inflation becomes more certain down the road and that includes inflated stock prices.
Another huge factor keeping prices down has been lack of retail participation in the markets as consumers struggled to repay debt and the 2008 crash left a lot of people feeling singed by the markets. However, those who stuck it out now have it all back and they are sitting around the office saying "I just left it all in my 401K and now it's back". That's a great commercial for long-term investing (our favorite kind) and a great incentive for those who still have jobs to start putting some into the markets again.
As noted in this USA Today graphic, trade volume is rising, portfolios are back to 2007 levels (for those who stayed invested), money if flowing back into the market, bullishness is on the rise and fear is way, way down – probably too far down, as…