Keeping market rise in perspective

The markets showed yesterday that they can still blast off as well as blow up.

No one can say exactly why the market rises or falls in a given day. Traders, money managers and market watchers will all give you their take on the action.

But any trading session is the sum of millions of investment decisions by thousands of participants.

One of the biggest gainers locally was Vishay Intertechnology Inc. Its shares (ticker symbol:VSH) rose 28 percent, or 96 cents, to $4.35 on a day when the Malvern company released third-quarter earnings. Given that its stock price rose, you would be forgiven for thinking that Vishay had a great quarter.

Vishay had a net loss of $351.9 million, or $1.68 per share, compared with net earnings of $35.2 million, or 19 cents per share, for the third quarter of 2007. Management said its short-term outlook was “uncertain.”

Vishay released those numbers in the morning. But its stock really didn’t start its march higher until about 2:40 p.m. - around the same time the major indexes began their ascent.

There are any number of reasons that people were willing to bid up stock prices yesterday. From a valuation basis, the bulls keep telling us that stocks have rarely been this cheap. Bloomberg News said that the Standard & Poor’s 500 index was valued at 10.7 times estimated earnings before trading began Tuesday.

But if stock prices are reflections of future earnings and most companies have been reducing their profit forecasts, why would the Dow Jones industrial average and S&P 500 rocket 11 percent higher?

Please don’t tell me it’s in anticipation of the Federal Open Market Committee’s announcement later today of a cut in the federal funds rate to 1 percent. That might help, but last time I checked, few economists were calling for us to avert a recession.

And until the indexes rise for more than one or two sessions, I’ll avoid calling it a stock market rally. Yesterday’s gain was only the fifth by the Dow this month.

Remember: The Dow’s biggest point gain was 936.42 on Oct. 13. At yesterday’s close, it remained 322.49 points below the Oct. 13 close of 9387.61.