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Tickers in this Article: GNW, ODP, F, PCS, HRB, DF
March 9, 2009 marked the lowest point of stock market indexes in recent history. One year later, markets have rallied nearly 55% and momentum remains in investors' favor. But has the economic/financial environment drastically changed to justify these magnificent returns? Probably not.

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Bank Failures
Year to date, there have been 26 bank failures - well on par to reach the total 140 failures of 2009. There are currently 702 banks on the FDIC problem list, up from the 252 banks that were on the list at the beginning of 2009. Foreclosures are still a serious problem; however, unlike last year when homes were foreclosed as soon as it became apparent that homeowners were not able to make their payments, banks are now allowing people to stay in their homes for longer periods of time. Unemployment remains a serious problem with nearly 9.7% of the workforce unable to find a job. Although this figure represents a marginal increase in unemployment statistics, many employed individuals have settled for jobs outside of their career field.

Stock Appreciation
Most stocks and sectors have seen wild appreciating values; Genworth Financial (NYSE:GNW) is up 1837% in the last year, while Office Depot (NYSE: ODP) stock price has increased by 1035% within the same time period. After coming close to bankruptcy, Ford (NYSE: F) now safely trades just under $13 and is up 660% year to date. These three companies, representing the insurance, retail and automotive industry respectively are among the top 5 gainers in the S&P 500. Lodging and financial services make up the remaining two top gainers.

207 out of the 500 stocks featured in the S&P index have experienced gains over 100% since the market hit its low last year on March 9. Only eight companies, representing 1.6% of the index have lost value this past year. MetroPCS Communications (NYSE:PCS), although gaining 12.75% in the past month has gone down by 54% in the last year. Other shares in the red include H&R Block (NYSE: HRB) and the dairy producer Dean Foods (NYSE:DF). Despite the incredible stock market returns of the last year, the same macro variables that plagued the economy last year are still making their presence felt today.

Have Things Changed?
There is one major difference between March 9, 2009 and March 9, 2010 - market psychology. Last year investors and consumers alike feared that the bear market would indefinitely continue. Investors liquidated their stock positions while consumers heavily cut back on their spending habits, avoiding purchasing such luxury items as cars and jewelry. As the market continues to turn the corner, investors have regained confidence and are entering riskier positions in the irrational market upturn while consumers are pursuing a lavish lifestyle, often living outside their financial means. The fundamental problems that lead to the Great Recession are emerging once again. (For further reading about market psychology, check out Gauging Major Turns With Psychology and Gauging The Market's Psychological State.)

Bottom Line
In contrast to John Maynard Keynes, who stated "the market can stay irrational longer than you can stay solvent", the current market conditions are better reflected with the belief that "you can stay solvent as long as the market can stay irrational."

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