State of the Stock Market Analysis for the Week Ending May 31, 2014 (Stock Market Has Decent May 5-31-14)
Forget about that old saying that investors should, “sell in May and go away.” May actually turned out to be a pretty decent month for the stock market as it notched monthly gains of 0.8% for the Dow, 2.1% for the S&P 500 and 3.1% for the Nasdaq. Even this week was impressive for the stock market, despite some weak economic news that included a downward revision in first quarter GDP and a weaker-than-expected consumer confidence report. The stock market may have closed out Friday mixed and relatively flat, but the overall week was a winner for equities as the Dow rose 0.7%, the S&P 500 gained 2.1%, and the Nasdaq added 1.4%.
Friday may have been fairly mellow, but the Dow managed to notch a new all-time closing high (its intraday all-time high was 16,735 on May 13th) while the S&P 500 did hit an all-time high of 1,924 before closing; a point lower at its all-time high close of 1,923. The S&P 500 ended the session at its highs of the day, which had bulls singing and dancing straight into the weekend. Bulls are looking for this “slow and steady” momentum to roll over into June, and that could pave the way for a Summer Rally that often shows up this time of year, when the weather gets hot.
This year is turning out to be a perplexing year for investors. After 2013’s red-hot performance in which the S&P 500 return 32%, there were an awful lot of “Doubting Thomases” predicting that the upside party simply could not last. Market strategists, economists, and even some perma-bulls had become wary of the five-year-old bull market that began way back in March of 2009. As January began, we had Ben Bernanke about to step down, unemployment remaining high, housing was sputtering, and to top it all off, the Fed was tapering back on its bond purchases. The buzz was that interest rates would rise, and that stocks might get walloped.
Well, a funny thing happened on the way to this “inevitable” bear market. It simply never materialized. There were a few bumps in the road that caused stocks to pull back in late-January and mid-April, but those pullbacks were short-lived. Even the big downward swoon in some of the newer technology and social networking stocks did not drag the broader market down with them. Earnings season was good, but not great. However, the stock market took most of those first-quarter disappointments in stride. There are still a lot of worries out there right now, but that is far healthier for stocks than a euphoric, runaway bull market.
One worry that is hanging like a dark cloud off in the distance is the ongoing decline in the 10-year Treasury. Its yield fell to 2.40% this past week, before closing out Friday at 2.45%. That is great for borrowers buying homes or cars, and it is helping companies refinance a lot of higher-interest-rate debt. The low rates, however, are still a big head scratcher. Does the bond market see something ahead that no one else sees coming? We should see answers to this question in the weeks and months ahead, but until then, the low rates will likely keep the stock market fat and happy (and rising). It is clear, though, that someone or something is buying Treasuries in a big way.
Because of all of the economic and political turmoil throughout the world, U.S. Treasuries remain a very attractive “safe haven” for global cash. The yields are minuscule, but the safety of U.S. Treasuries is unsurpassed in the eyes of fearful countries and corporations throughout the world. The European Central Bank (ECB) is back at work pulling levers and strings to fix Europe’s economic malaise, and we get some input from ECB President Mario Draghi next week. Europe has been out of the financial spotlight for quite a while, so maybe they have some new problems surfacing that they need to address. (Maybe they are the big U.S. Treasury buyers.)
With June kicking off on Monday, we have a lot riding on economic numbers from the U.S. and the rest of the world. China, the Middle East, Ukraine, and Europe all have “hot spots” that can rattle global markets in a blink, so let’s hope that the global picture remains calm, cool, and collected. On the domestic front, all eyes will be on the U.S. Jobs report, which is scheduled to be released on Friday, before the opening bell. Economists are looking for 200,000 new jobs and for the unemployment rate to tick up to 6.4%, from last month’s 6.3%. The 200,000 is quite a dip from April’s 288,000, so we shall see if we can somehow top May’s lowball estimate.
That said, the Gorilla wishes each and all a relaxing weekend as we head toward summer. Friday’s records for the Dow and the S&P 500 make it a particularly relaxing weekend for those of the bullish persuasion. So again, let’s hope the slow and steady march to higher highs carries over into June. Again, have a great weekend!
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