Global markets seem to be in the midst of what looks like one of the strongest bear market rallies in the current downturn. What does it tell us?
One thing is pretty clear. All the measures of fear and risk aversion show that the panic which gripped the markets after the collapse of Lehman Brothers in September has abated. It is also likely that the worst of the financial crisis is over—at least for now. But it would be foolish to predict a return to normalcy. There could be more nasty surprises in store.
It now seems as if the world will have to struggle with another set of problems. The US, Japan and large parts of Europe are in recession. India and China, too, are headed towards a severe slowdown. There is an avalanche of bad news from companies, with the hardships of the American auto makers in Detroit being the most well known.
In other words, the destructive action has moved into a different theatre—from Wall Street to Main Street, as the Americans would say. The current rally in stocks could bump into these harsh realities very soon.