Tuesday, May 5, 2009

Bear Market Rally Or Bull Market?

S&P 500 up 34 Percent in Less Than 2 Months: S&P 500 went down 38 Percent for all of 2008. So why are we Still Down 42 Percent from the 2007 Peak?

We are witnessing one of the strongest bear market rallies in history. This kind of market volatility only rears its head during extreme environments. One quick fact many market watchers will realize is that if you lose 50 percent of your portfolio, you will need to have a 100 percent gain to break even. How so? Look at it this way. Say you have $100 which falls to $50, a 50 percent decline. A 50 percent increase will only put you up to $75, $25 short of the original $100. That is why even though the market has rallied a stunning 34 percent in 7 weeks, we are still down 42 percent from the peak reached in August of 2007.

Take a close look at some of the rallies during the Great Depression: (more)