Buy in May and ... Get Back to Work,
Sat May 31, 9:19 AM ET
story.news.yahoo.com
By Patrick Fitzgibbons
NEW YORK (Reuters) - The old pre-summer wheeze of "Buy in May and go away," may not ring true this year as an especially bullish month draws to a close and all signs point to better things to come in June.
Indeed, if this past week is a sign of things to come, this summer looks to be one to stay in town and away from the beaches, the mountains or wherever else investors usually go to while away the dog days.
From 1985 through 1997, May was the best month of the year, but in four of the last five years, the S&P 500 was down in the month, according to Hirsch's Stock Trader's Almanac. This year looks like a reversal back to the norm.
It's hard not to get a bit bullish over recent events: Over the past week, President Bush (news - web sites) signed one of the largest tax cuts in U.S. history; 30-year mortgage rates sunk to 5.31 percent, the lowest reading since Freddie Mac started keeping such numbers in 1971; and volume on the Nasdaq hit its high-water mark for the year.
And the best may be yet to come.
"You know, all these things mean there's just more money to spend, said Alexander Paris, research director of Barrington Research.
In the just-completed week, other factors bolstered investors' confidence.
While certainly not a cuddly get-together, Israeli Prime Minister Ariel Sharon (news - web sites) and his Palestinian counterpart, Mahmoud Abbas, sat across the table from each other and restarted (or is it re-re-started?) Mideast peace talks.
This is never a bad thing.
Then on Friday, the White House said it was reviewing the current "orange" status of the U.S. terror alert. The color changes and the threat level goes down -- break out the wallets, because the stock market will like that, too.
RUNNING WITH THE BULLS
Even on Thursday, which was a mixed day for the overall market, the Nasdaq continued to pop higher and posted a new year high on volume of about 2.2 billion shares. What's more, in the 10 sessions up to last Wednesday, the ratio of new highs versus new lows on the New York Stock Exchange (news - web sites) was 31 to 1.
The mood brightened further on Friday as all the major indices were surging.
On Friday, the Dow Jones industrial average (^DJI - news) ended 139 points, or 1.6 percent, higher at 8,850.26; the broader Standard & Poor's 500 index (^SPX - news) was up 13.95, or 1.5 percent, at 863.59 and the tech-heavy Nasdaq Composite index (^IXIC - news) was up 20.96, or 1.3 percent, at 1595.91.
For May, the Dow was up 4.4 percent, The S&P 500 gained 5.1 percent, and the Nasdaq was up 9 percent. The Dow and S&P 500 posted their third-straight up month since late 2001.
One of the most bullish things about this market is that there is a passel of lagging stocks that have yet to catch the good wave. When they do, and the smart money says late-second or early-third quarter, look out.
"Non-tech companies have been in a recession since 1999 and those companies are really lean due to cost containment," Paris said. "They see any kind of little (sales) upswing now and it won't take much to get meaningful margin growth."
Is this just a re-inflation of that same lousy bubble that burst a few years ago? Not really.
"While the market is vulnerable to macro shocks from terrorism, economic weakness, and so forth, the micro picture looks more stable than it has for several years," Steve Galbraith, Morgan Stanley's chief stock strategist, said in a note to clients on Friday.
Unlike then, Galbraith says the leaders in this rally are actual companies with actual business plans.
GET A JOB
But if there is one thing that lends a note of caution to the market it's the still-lousy state of the U.S. employment picture.
On Thursday, the weekly claims for unemployment fell a little, to 424,000 in the May 24 week -- staying, for the 15th week running -- above the key 400,000 threshold thought to separate job growth from contraction.
This sets up a concern for late next week when May jobs data are released.
"The jobs data are probably not going to be that great, but I really don't expect much of a big number either way," Paris said.
He said next Tuesday's report on May layoffs done by outplacement firm Challenger, Gray & Christmas, will be a key indicator and could provide even more reason for cheer. In April, layoffs rose by 71 percent from March. The last report -- released on May 5 -- sent stocks lower.
Indeed, the employment picture continues to cast a cloud over the entire economy. On Thursday, the Bureau of Labor Statistics said the number of layoffs involving 50 or more workers rose in April compared to the same month a year ago.
But the most important jobs report comes on Friday, when the U.S. government announces May employment figures. In a Reuters poll, economists said they expect nonfarm payrolls to decline by about 26,000 and the unemployment rate to nose higher, to 6.1 percent from 6 percent.
Numbers like this are not likely to have much of a slowing effect on the bulls. But, eventually, even the cheeriest summer comes to an end and it's time to get back to work. |
