SPRING is in the air and for the first time in a long time there seems to be some joy in the hearts of equity investors. The panic that has cast its pall for so long seems to be giving way to a belief that perhaps things have passed their nadir and the markets may be really beginning to strengthen.
The All Ordinaries Index is up about 12 per cent since its June lows of 4033 points and the cash rate is 3.25 per cent, down from 4.75 per cent last December, making bank deposits less attractive. Add to that some positive sentiment coming out of the US, China and even European debt markets and it's not surprising that some of the yield stocks, such as the banks and Telstra, have had a run.
But remember the observation of the sharemarket wag who said: "If you can see green shoots all around, that means you are not out of the woods yet." Bear markets can take a long time to turn. So this week Robert Brain, a director of the Australian Technical Analysts Association, compares our progress with that of the bear market triggered by the great crash of 1987.
Then, the All Ordinaries Index fell 25 per cent in a day and about 48 per cent over 21 weeks to bottom out in January 1988. It did not make new and sustained highs until December 1996, nine years after the crash, although many blue-chip stocks recovered long before that.
It wasn't all doom and gloom during that period, with the index making up some good ground in 1988-89. But progress proved fleeting and, after the initial bottoming, the path was rougher than we have experienced in the current bear market.
"During this nine-year recovery period there was one market correction of 19 per cent in late 1991, and there were two more bear market periods with falls of more than 20 per cent in October 1989 and January 1994," Brain says.
Today the All Ordinaries is still 35 per cent below its record high of 6853.6 points reached on November 1, 2007 five years ago almost to the day. And remember, being 35 per cent off its highs means it has to climb about 50 per cent from here to regain them.
While there may be signs of life in the markets, it is well to bear in mind that the experience of the 1987 bear market shows recovery can be slow, with some hard going along the way.
Continuing problems in Europe and political brinkmanship over US government borrowing leave plenty of scope for market shocks in the coming year or two and, says Brain, we should not be surprised if that happens.
By the same token, there's nothing to say this bear market will run as long as its 1987-96 forebear.