Beware of geeks bearing good news

Many people are expecting an end of year rally in stock markets. But with a rapidly-deteriorating global outlook, it's difficult to share that optimism.

"Ready for an end-of-year rally?" asks The Sunday Times. Key indices in America, Europe and Britain had gained 20% from their late October lows by last week before falling back. Bulls note that US stocks, which set the tone for world markets, often bounce after an election. The S&P has gained an average of 7% in the three months after a Democrat wins and almost 14% a year later, notes The Sunday Times's Jennifer Hill. Meanwhile, Morgan Stanley's European strategist Teun Draaisma, who rightly warned investors to sell in June last year, reckons that while there are short-term risks ahead, "the severe part of the bear market is over".

It's hard to share this confidence. Even after last week's surge, major indices remained in a downtrend, as John Authers points out in the FT. They hadn't risen above their 50-day moving average, a key indicator of the longer-term trend. And when US elections take place in bear markets, as Alan Abelson points out in Barron's, the S&P slides by an average of 6% by the end of the year.

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