If you had to identify the biggest business development of the year's first half, what would you choose? GM declaring bankruptcy? Bernie Madoff being sentenced to 150 years? The Obama financial regulation proposal? Ken Lewis's demotion (to mere CEO, rather than Chairman and CEO) at Bank of America?

It's a tough decision...but I would vote for none of the above. Rather, I would go with the U-Turn in the Stock Market that began in early March.

Why? Until March 9, stock prices were still in free-fall, continuing the crash of 2008. That reflected a continuing stream of bad news on the economy and serious concerns that the financial system might collapse. But then the Stock Market began to turn round and headed in the other direction--rallying some 40 percent over the next four months. (Even that move only brought prices back to where they started the year, but who's complaining?)

What's more, Ned Davis Research has proclaimed this rally to be the start of a "cyclical bull market." Historically, that's what happens after the market has completed a waterfall decline" of the type that we just experienced. And here's the good news: Cyclical bull markets generally last for more than a year and see gains that average more than 60%! (Tim Hayes of Ned Davis Research will elaborate on that when he appears in our "The Economy and the Markets at Midyear" special Friday, July 3).

But in my opinion, even more important than the money to be made is the psychological impact of an "up" market. Stock prices are considered a leading economic indicator--meaning that a rise in stocks often indicate a future rise in economic activity. And I would go a step farther. My contention is that an upward move in stock prices actually helps to bring about a corresponding move in the economy. That's because when investors think they have more money (even if it's just on paper), they feel better--and tend to spend more. And when investors spend...that puts more money in other people's wallets...a phenomenon known as the multiplier effect.

So should we now get set for the next economic boom? Perhaps...but when you're talking about the Stock Market or the economy, nothing is certain. Mark Leibovit of VRTrader.com (who also appears in our July 3 program) notes that in the period following the 1929 crash, there were three big bull markets--but all three soon ran out of steam and fell back. Similarly, Leibovit thinks the current upswing will be short-lived. Still, I'm optimistic. The most widely-held stock mutual funds all had double-digit gains in the second quarter, laying the groundwork for a further gain in consumer sentiment. And if that happens, I expect that we'll see a loosening of the purse-strings in many households in the second half of 2009!