The Edge of Death

Two of my favorite pastimes are watching a market confound the pundits and a sports come-back story. It strikes me that in this pre-Memorial Day week, we are seeing both and there are important lessons that investors can take away in the process.

Let’s start with the amazing odyssey of Red Sox’ pitcher Jon Lester. Lester’s young career was stopped short in 2006, when he was diagnosed with a rare form of non-Hodgkin's lymphoma. Although he did not speak extensively about this period, we can only surmise that pitching statistics and wins and losses take a back seat to life and death. Lester, like so many cancer survivors, endured months of treatment, including aggressive chemotherapy, with the hope of life first, everything else next.

He returned to the Red Sox and on Monday night, and Lester took the mound against the Kansas City Royals. He had never even completed an entire game in his career, but on a fateful night at Fenway, Lester threw the first no-hitter of the Major League Baseball season and the 18th no-hitter in Red Sox history. One of my friends who is a doctor likes to describe the process of chemotherapy as “walking to the edge of death.” Imagine coming back from the edge to deliver this kind of performance?

On a much smaller and less important scale, I could not help think about another beast that went to the edge, only to come back. I am talking about the US stock market. It was only two months ago when the financial system was melting down and the near-collapse of Bear Sterns signifying the “edge of death.” Well, maybe not death, but certainly significant pain and suffering. You may recall that in mid-March, concerns were mounting that the market could suffer a massive pullback from an already-low level.

Since then, the market has gone through its own treatment of sorts: the drug of choice came in the form of a variety of Federal Reserve actions; benign economic numbers (US economic data have been lukewarm, but not as weak as some have originally feared); and better-than-expected first quarter earnings from non-financial sector companies. As a result, the financial system is healing. While we are not out of the woods yet (stubbornly-high oil and food prices make that impossible right now), things are improving. I wouldn’t expect any no-hitters from this market just yet, but in the past 6-8 weeks, the market has tilted towards an upside bias in the absence of specific bad news. That’s good enough for me after experiencing the metaphoric edge of death.