Sense on Cents

Barring a major selloff in the stock market in the next three days, March 2009 will go into the books as the largest positive month in the stock market since 1974. It all started 3 weeks ago today when the market, if not the world itself, felt like it was ready to end. The question before the court is “does this rally have legs?”

Having seen some stability and pleasant surprises in economic data over the last few weeks, will those trends continue? What prompted some of the stability in the first place?

In the face of consumer and corporate cutbacks in spending and expenditures, the government has been forced to provide relief to consumers. This relief came largely in the form of cost of living adjustments in Social Security and increased unemployment benefits. Were these the only props supporting a 20+% rally in the stock market? Doubtful. Don’t forget, no market ever goes anywhere in a straight line. The market was oversold and many investors as well as short term traders became exceedingly bearish. That excessive level of bearishness was the catalyst for this rally. (more…)