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Market rally – has it come too far?
by Andrew Newmanin Investing
21 Sep 2009 | 3 Comments
The Australian sharemarket has rallied strongly since its lowest point in March this year.
A rally from the bottom of the market can create a false signal that markets have rallied too far and too fast, so it's worth being clear on the numbers. We are not even half way back yet.
From its low point of 3112 (6 March 2009) to the present level of 4541, the Australian All Ordinaries Index has risen by 46%. But the current level is still 34% lower than its November 2007 high.
In other words, the rally has only recovered a little more than one third of the decline. The Australian sharemarket still needs to rally another 51% from current levels to return to its previous high.
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Comments (3)
Excellent answer, Andrew. Frankly, your reply affirms my sense that the "risk" in the market at present is still at quite benign levels.
21 Sep 2009, Jim Noonan, www.jimnoonan.id.au
Yes Jim, it took 2,273 days or 6 years and 3 months for the market to reach news highs following the 1987 crash! If the same were to happen this time, it would take another 4 years and 6 months for the market to increase 51% and reach news highs. That's an annualised return of 9.6% which is far better than the returns currently on offer from cash.
21 Sep 2009, Andrew Newman, www.cmpfinancialplanning.com.au
But, Andrew, after the 1987 crash, the market took over 6 years to return to the previous high. If the same were to happen this time, we could easily find that the current "recovery" is premature and that the rate of increase in the market might well not be sustained.
21 Sep 2009, Jim Noonan, www.jimnoonan.id.au
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