From the Bear Stearns bounce in mid-March to the Freddie and Fannie fall last week, the past six months have proved to be one of the most volatile periods in recent stock market history.
America's S&P 500 index has gone from 1,273 on 10 March, when markets were gripped by fear that Bear Stearns was set to go under, to 1,426 in May, following the Federal Reserve bailout of the bank and the feeling that the US authorities were in effect underwriting the markets to stop the domino effect that the collapse of a major institution was likely to cause.
Since the May rally, America's key market has fallen into decline, paring back to just 1,214 in July and spending the summer bouncing around at the bottom, closing at 1,251 on Friday – a 15 per cent fall from the start of the year. Just under a year ago the market stood at 1,565.
When the rally was in full flow, Mike Lenhoff, chief strategist at the broker Brewin Dolphin, described the Bear bounce as an "astonishing turn in sentiment ... a real turning point". So what does he think now?
"It's hard to tell how effective the US Treasury's bailout of Fannie Mae and Freddie Mac will be in helping to stabilise the housing market, but one would have thought it would help break the logjam underlying mortgage finance," says Mr Lenhoff. "The other side of the equation is whether house prices have adjusted enough to induce buyers, and how the prospect of recession, with its implication for jobs, will affect consumer confidence and readiness to buy."
The course of Britain's FTSE 100 index has proved similar to that of the S&P, climbing from 5,414 in March to 6,376 in May and falling back once again to 5,318 at the end of last week. On one day alone in August, some £20bn was wiped off the value of British equities.
"The markets have gone through an incredible rotation," says Simon Murphy, fund manager at Old Mutual Asset Managers. "We've seen a sell-off in resource and energy-based assets, stoked by fears of a decline in global growth, while uncertainty remains about financial stocks. The retail arena is tough too. Some of these stocks look cheap but it's a tough call whether to go back to this arena or not."
Jan Luthman, fund manager at Walker Crips Asset Management, says the outlook for the likes of the British and US economies remains bleak.
"There are plenty of risks ahead," says Mr Luthman. "Deteriorating loans related to residential property, commercial property, credit cards, private equity and corporate clients mean substantial writedowns to come."
On Friday, further evidence emerged suggesting that the US economy was getting weaker, when there was a surprise fall in retail sales. At the same time, speculation continued about whether Lehman Brothers, the investment bank, would be bailed out.
"Until we get a resolution to this Lehman issue, we aren't going to know the impact of the Fannie and Freddie bailout," says Mr Lenhoff at Brewin Dolphin. "There's hasn't been a thumbs-up or down yet. If the rumours are to be believed that Lehman could be taken out this weekend, the coming week will give us a much clearer picture. When we return to our chairs on Monday, it could be very interesting."Reuse content