A number of analyst once again are calling for ‘Sell in May, and go away’. The theory that they rely on is based on the fact that historically from November to April, the market has outperformed May through October. However, like every Wall Street adage, there are other factors. If you ‘sold in May’ last summer you would have missed the biggest rally of 2013.
This May we look at other factors than the time of the year. We find ourselves with a choppy market with an upward bias. This year we have spent much of the time consolidating the gains of 2013. The ‘energizer bunny market’ seems to still have energy left in it.
Despite some volatility, markets rallied on better-than-expected housing numbers, putting the S&P 500 above 1900 for the first time.1 For the week, the S&P 500 gained 1.21%, the Dow gained 0.70%, and the Nasdaq grew 2.33%.2
Housing & Jobs
The housing market took center stage last week on upbeat reports on new and existing home sales. Sales of new homes in the U.S. rose 6.4% in April after slumping for the previous two months.3 Existing home sales grew for the first time in 2014, creeping up a modest 1.3% in April.4 Though analysts don’t expect this “spring thaw” to rescue the housing sector, they hope that it will lead to stronger growth in the second quarter.5 High prices and rising mortgage rates have sidelined many buyers, but stronger labor market trends could strengthen home buying trends.
Initial jobless claims spiked more than expected last week, however, continuing claims dropped to their lowest level since December 2007. The four-week moving average of initial claims also dropped, indicating that unemployment trends are generally moving in the right direction.6
However, a recent poll revealed that nearly half of unemployed Americans are thinking about or have given up the job hunt. Feelings of discouragement and hopelessness are preventing many survey respondents from continuing to seek work; even when jobless benefits have run out. The survey also indicated that many long-term unemployed are not willing to relocate or pursue education that could help them land a job. Mismatches between available jobs and worker skills could be contributing to unemployment and under-employment trends.7
The Fed Factor
The Fed released meeting minutes from the April Federal Open Market Committee (FOMC) meeting, and while the report contained no surprises, investors were reassured by the meeting’s focus on an exit strategy for quantitative easing. The minutes also emphasized the desire by some Fed insiders to give the public more information on future Fed plans in order to give markets more time to digest key policy shifts.8
Looking ahead at the holiday-shortened week, investors will be taking a close look at Thursday’s Gross Domestic Product (GDP) report as well as key consumer sentiment numbers. Strong spending and consumer confidence data would support hopes that economic activity is picking up in the second quarter.
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