With the stock market rallying for three consecutive days, and then taking a breather on Tuesday, it might be tempting to conclude that the long list of problems facing the world has been digested by investors. That is, as Bloomberg News reports, "Global markets are signaling that sustained economic growth will more than make up for Japan's worst disaster since World War II, rising commodity prices and uprisings throughout the Middle East and North Africa."
Barry Ritholtz, writing on The Big Picture, isn't so sure about that, arguing that the stock market rebound looks like a junior version of the selloff and rebound that followed the 9/11 attacks.
"After the selloff, markets became deeply oversold, fear and sentiment became so negative, it created a bounce that erased nearly all of the rally prior to rolling over again," he said on his blog.
There is one big difference, though, as Mr. Ritholtz points out: The rebound in 2001 followed a general downtrend in the stock market that had begun after U.S. stocks peaked in March 2000. Today, though, the rebound follows a general uptrend in the market that began in March 2009.
"We had the early signs prior to this action of the formation of a top. I expected that process would take several months to develop. This latest drop/pop obscures that somewhat," he said.
"We do know one thing: Big historical events have a tendency to make the markets wobble somewhat before they resume their prior trend."