WHAT do Tiger Woods and the S.& P. 500 have in common?
After losing their way a few years ago, Tiger Woods and Wall Street have rebounded to recent success. The S. & P. 500 climbed back over 1,400, and Woods won a tournament.
They’re back!
Neither Tiger nor the stock market ever entirely disappeared, of course, even when it might have seemed that they should. But they certainly moved out of the spotlight.
You may recall that after a long run of spectacular good fortune, each hit a wall — or, in Tiger’s case, a fire hydrant and a tree. (Hey, this isn’t reality TV. Some details will be left to your imagination.)
Amid much heartache, the great golfer and the stock market both lost their way — and lost the ability to mesmerize a suddenly disenchanted public.
But in March, after more than 900 often harrowing days, both Tiger and the market accomplished something memorable.
On March 25, he won the Arnold Palmer Invitational tournament in Orlando, an accomplishment that was commonplace when he was racking up titles every weekend. It had been a very long time — 923 days, to be exact — since the P.G.A. Tour Web site needed to add a new trophy to its “Tiger Woods Victory Room,” an online sanctum dedicated to celebrating the career of “the most recognizable athlete on the planet.” He said that this particular victory, his 72nd on the official PGA tour, was an occasion for “pure joy.”
In some circles, the stock market commands almost as much attention as sports, and in these precincts the month was also notable. On March 15, the Standard & Poor’s 500, which tracks the movements of big-company stocks, closed above 1,400. That’s a gain of 107 percent from its 2009 low. The index has been flirting with 1,400 since, closing on Friday above 1,408. It has gained 12 percent this year.
That achievement may not warrant a brass band, but it is something of a milestone. Before March, the market hadn’t closed above 1,400 in nearly three years — 951 trading days, actually. (Morgan Stanley has been counting.) Many brokerage statements will now make for more pleasant reading. But based on past history, Morgan Stanley suggested in a research report, investors would be wise to respond with relief rather than rapture.
AFTER all, the market has been here before, several times, always with dismal results. The S.& P. surmounted 1,400 in 1999, before the market tumble that started in 2000. The index broke through it again on Nov. 17, 2006, and climbed above 1,500 the next year, only to fall off a cliff. After many years of wrenching ups and downs, in other words, the S.& P. has gone nowhere.
What’s worse, Morgan Stanley finds parallels to late 2006 and concludes that the market today is in some ways more precarious.
While the economy has been growing lately, the report said, “macro conditions are vastly different and largely worse” than in 2006. Real gross domestic product in March grew at a lower annual rate — 1.6 percent, versus. 2.2 percent in November 2006. Inflation was much higher — 2.9 percent versus 1.4 percent. And the disparity in unemployment rates is shockingly steep, at 8.3 percent versus only 4.4 percent.
Most corporate balance sheets are in better shape than they were in 2006, but the Federal Reserve’s is conspicuously bloated, the report noted. The Fed has been doing its best to prop up the economy and to make riskier assets, like stocks, more appealing, but its efforts may pose significant dangers.
“During this same period, the Federal Reserve has tripled its balance sheet to nearly $3 trillion through purchases of mortgage securities and Treasuries,” Morgan Stanley noted. “While this stimulative monetary policy has arguably aided risky assets, it has increased uncertainty as well, since ultimately it needs to be unwound.”
The Fed stands ready to do more. With the housing market weak and unemployment high, it is “too early to declare victory” for the economy, Ben S. Bernanke, the Fed chairman, said last week. And if oil and gas prices climb high enough, they could easily derail the American economy. So could the recession in Europe or a flare-up of the financial crisis simmering in the euro zone. Or slowing growth in China. Or fiscal austerity in the United States.
David Rosenberg, chief economist at Gluskin Sheff in Toronto, and formerly of Merrill Lynch, wrote in a report that huge central-bank intervention is the “critical reason” the market has “doubled over the past three years — punctuated by steep givebacks once the taps are turned off (only to then be turned on again.)” This pattern is likely to continue, he says, so investors should keep their wits about them.
IN a similar vein, Morgan Stanley says expectations of rising corporate profits have persuaded many investors to pay richer prices for stocks. But the trajectory of the profit growth is flattening, it says. The company emphatically warns its clients: “Don’t pay a higher multiple for today’s corporate earnings.”
In short, the stock market is back and may well move higher still. But it’s worth remembering that it is a blood sport — more “Hunger Games” than light entertainment.
Golf, on the other hand, is a gentler pastime. Yet it, too, has provided some stern tests, with one this week at the Masters tournament at Augusta National. Like the market, Tiger Woods is back, yes. How securely, we may soon see.
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