Bears have plenty to roar about

published 31 October 2005

Christmas is here early for the bears, says www.TheStreet.com. They have had "plenty to roar about" over the past two weeks as their prediction that a weakening dollar could prompt an exodus of foreign investors from US assets "finally got some support"; the mutual fund scandal, terrorism and signs of an incipient trade war have added to recent jitters. Meanwhile, given the muted response to good news on the earnings front, "there seems little prospect of excitement" for US equities even if there are positive surprises in store, says Chris Flood in the FT. The market seems concerned that the third quarter's impressive growth may not prove sustainable. HSBC notes that the 21% year-on-year surge in S&P 500 firms' profits is due largely to labour-saving technology and rigid cost-cutting; revenue growth accounted for just 7%.

Market history also militates against substantial further gains, says www.Dailyreckoning.com. Stocks tend to rise in real terms for 17-20 years, and then fall for 17-20. And while they have fallen since 2000, they are still at epic highs, so the odds of them rising are not good. "A lot has happened over the course of the past two decades that could twist history, but nothing that is likely to make a share worth more than 30 times earnings."