'Nice bounce' - but beware the landing

This bear market has had more false bottoms than a conjurer's bag, and this latest rally is likely to be another one.

Once again, everybody's talking about "inflections, turns and bottoms", says Liam Denning in The Wall Street Journal. This year's renewed plunge in major indices has been followed by a rally that has seen the S&P 500 gain around 13% and the FTSE 100 8%. Fidelity's Anthony Bolton has called the bottom (again), while Barron's last week said that US stocks "probably won't slide much further". Value investors James Montier of Socit Gnrale and Jeremy Grantham of GMO have become more bullish of late, noting that stocks look cheap although that's not the same as saying they've reached a nadir.

But this bear market has had more false bottoms than a conjurer's bag, and this is likely to be another one. Pessimism reached "extreme" levels early last week, says Jack Ablin of Harris Private Bank, a condition that often heralds a rebound. Citigroup generated optimism with a leaked memo saying it turned a profit in the first two months (although this was before write-offs). The G20 finance ministers' promise to ensure financial stability and Federal Reserve chairman Ben Bernanke saying the US economy could begin to recover next year if the government can get the financial system working also cheered investors.

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