Stock markets: A warning from the 1930s

The US market is "way ahead of itself", says David Rosenberg of Gluskin Sheff. The S&P 500 has now rallied by almost 50% in five months. There hasn't been such a rapid rise in such a short time and "without anything more than tentative signs of economic improve-ment" since the bear rally of 1930.

Since 1950, every time stocks reached the 50% mark, corporate profits had, on average, grown by 12% and GDP by 4.5%. Employment had revived strongly and bank lending was expanding at a 5% clip. But not in this rally; all these key economic numbers are still "trying to make a cycle low", says Rosenberg.

It also bodes ill that valuations both now and then never reached levels typical of long-term, bear-market bottoms, as the FT's John Authers wrote. Just as they did in 1930, stocks look pricey again after their latest run-up. But the most worrying sign is that this rally has tracked the 1930 rally very closely. The latter saw a 48% jump in five months almost exactly where we are now before sliding to new lows.

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