LEGG MASON's BILL MILLER SAYs indications are the US BULL market ended on 9 OCTOBER
The US bear market came to an end on 9 October, according to Bill Miller, US Value fund manager at Legg Mason.
Miller cites many reasons for his view, chief among them is his belief that valuations of individual securities reached levels in early October that made investing safe.
Historically, September is the weakest month and markets have tended to bottom then or in October. Added to this, he said, companies often issue profit warnings in September, putting further pressure on stocks. Now, as earnings start to be reported, most companies are exceeding lowered expectations, providing investors with a reason to buy.
He noted that at the end of September only 25% of stocks were trading above 200-day moving averages, typical, he said, of the bottom of the market.
Treasury yields are uncompetitively low, according to Miller. And investors who are reacting to markets instead of anticipating them are redeeming equity funds in unprecedentedly large amounts, further signs a bottom has been reached.
The bear market, which began in 2000, Miller said, saw a fall of 49% from peak to trough and was equal in magnitude and 50% longer in duration than any bear market in 60 years.
'The bear market, which I think ended on 9 October, was not only the longest of the post-war period and the deepest, measured from peak to trough, it was unique in the amount of value destroyed,' Miller said. 'More than $8 trillion of wealth evaporated from the high in March of 2000, representing about 85% of current year GDP. This is roughly equal to that from 1929 to 1932, and much greater than the value destruction in the 1973-74 bear market, which amounted to about 50% of GDP.'
The US market has had three periods of extreme pessimism during this bear market, each time creating a bottom, Miller said. The week after the terrorist attacks of 11 September, the week encompassing 23 July and the low reached on 9 October.
'A difference with the 9 October low,' Miller said, 'was many areas that had previously held up well fell apart in the third quarter, including housing stocks, other consumer names and categories such as small-cap value. There was no place to hide, except perhaps Treasuries'.
'It is no wonder we saw record redemptions of stock funds and record buying of Treasuries. Behavioural extremes, usually emotionally driven, are always a good source of investment opportunities. When the activity is extreme on one side, the profits are typically found on the other.'
The rally since 9 October has been the strongest in 70 years, he noted, exceeding the explosive move off the bottom in 1982, the move recovering from the crash of 1987, and those off the 1990 recession and the 1998 Long Term Capital panic.
He added: 'As this year winds down and investors think about the probabilities, the perception may remain that the risks of stocks are high and the risks of Treasuries are low. That is one possible world. The actual world is likely to be different.'
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