“The first wave of quarterly corporate earnings reports arrived stronger than expected, soothing investor fears of another economic crisis and helping push the Dow Jones Industrial Average to its strongest weekly gain since March. The Dow ended the week up 7.3% at 8743.94, taking just five days to recover almost all the 7.4% decline of the previous four weeks…

– E.S. Browning, Earnings Uptick Lifts Confidence, Wall Street Journal,
July 20, 2009

Ruh roh. Once again the stock market threw a surprise party and forgot to send out invitations. It can be such a pain that way.

The four weeks after the market’s spring rally peaked on June 12 were a long, slow downward slog. All the optimism seemed to have seeped out of the news reports. The experts told us that sentiment on Wall Street had (cue the kettle drums) turned negative. Economic indicators had stopped surprising us with good news. For every step the market took forward it seemed to take two back the next day. In early July the AAII Index, which measures the investment sentiment of individual investors, hit its highest bearish level since the market bottom in mid-March (let that one sink in for a minute, by the way). The rally was over, we were told. Once corporations began reporting their inevitably dismal earnings in mid-July, the only thing left to debate would be how low the market would go.

As Gilda Radner’s old SNL character “Emily Litella” would have said… “Never mind!”

As the earnings reports began streaming in, one company after another topped expectations. Simultaneously, economic indicators about the credit market and manufacturing activity began showing significantly positive signs. None of it was anticipated, but the stock market could care less. It gained back nearly all of the prior four week’s losses in just five trading sessions. If you blinked, you missed it.

This is the part about investing that escapes so, so many people. Stock market gains come quickly, massively, and unexpectedly. In fact, they often come when you expect the opposite. It is a story as old as the markets themselves. And it is why only the slimmest handful of investors ever obtain the returns that the stock market is trying so desperately to give them.