Too many people are impressed by the recent surge in stock prices.
Believe it or not, journalists are people, too! And it’s well-known that most of us aren’t exactly mathematicians (consider that a CYA disclosure in case I got a calculation wrong below). So I thought this might be a somewhat useful exercise on the recent surge in stocks.
Forget about whether it’s a dead-cat bounce or not (I say meoww!), the numbers, at least the percentages, are deceiving. Let’s do a little math:
Stocks (S&P 500) are up 35 percent from their bottom on March 9. Seems like a lot, huh? After all, at their nadir stocks were down about 57 percent from their October 2007 peak. At first glance, you’d think that means your index funds are only 22 points down, right?* Check those 401k statements. They’re still off a whopping 42 percent.
How so? the current 35 percent runup was off a much lower base (676.53) than the 57 percent crash (1565.15). Most people aren’t good at math. The financial press needs to give us a little help, putting the current mini-bull run in the context of the overall bear market.
A useful number for said context would be 131 percent. That’s how much of a bounce off the bottom it would take to get back to the October 2007 peak. Or 71 percent. That’s how much of an increase from today it would take to get back to par. Makes that impressive 35 percent look a bit different, no?
Even after the recent runup in stock prices, the markets are still well below where they were in the same time after the Crash of 1929. That’s how shockingly bad the fall from peak to trough was.
Let’s not lose sight of that.
* As “End the Echo” says below, good thing I put that CYA caveat in. I neglected to recalculate all my numbers after going back through the piece.