Prominent market analysts had the opinion that the old investor adage of “Sell in May and go away” would not apply this year due to strengthening market conditions as June approached. We all know what was bound to happen.
Some negative news about economic growth slowing, gas prices rising, additional weather related destruction, and the re-emergence of Greece’s debt woes turned investors moods negative overnight. How amazing it is that our society embraces negative news so quickly and replaces any good news and optimism with worry and despair.
Economic growth and investment markets rarely go up without a few retracements. The current economy continues to grow, albeit recently at a slower rate, and will most likely remain somewhat sluggish until the plight of the small business owner is addressed. We continually read about corporate cash levels at huge extremes and the fact that they will continue to spend on capital improvements and inventory rebuilding. That is true, and this alone will probably keep the economy growing, but it’s the small business owner that hires the majority of workers in this country. Tight credit and unclear tax and employee benefit policies continue to hamper hiring. No substantial hiring has ever occurred without small business expansion.
Currently, the equity markets are experiencing a 7% – 10% pullback from highs of the past month or so. This recent decline looks very similar to the last decline in February and March.
The good news is that inventories are still very low and will have to be built back up at least to some degree. Markets have reached oversold levels not seen since 1990 with over 61% of equities reaching oversold levels. From a contrarian view – only 24% of investors are currently bullish. Quite a low number. Corporate profits are still good.
While June is providing us with another decline so far, it does not appear to be leading to a substantial decline, but rather another consolidation prior to continuing to higher values.
Take some time to enjoy the summer – it goes by quite quickly.