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US markets sold off heavy last week with 12 out of the last 13 trading days ending negative. The Dow closed on May 1st at 13,279.32 and only 13 trading days later (May 18th) it closed at 12,369.38 (down 910 points or 6.85%). The NASDAQ closed at 3,050.44 on May 1st and most recently (13 trading days later on May 18th) closed at 2,778.79 (down 271.65 points or 8.91%).
The recent market declines have led investors to consider the wisdom of the phrase “sell in May and go away”. This terminology has been used by many intitutional investors over the past few decades as a pattern has formed with US markets generally trending upwards between October and April, while generally trending downwards between May and September. However, it’s important to note that this has not always been true, especially when interest rates are low. Nevertheless, the pattern seems to clearly be repeating itself so far in 2012. Many analysts believe the new support level for the Dow will form around 12,000.
The largest global economic driver behind the recent 3 week decline is once again Europe and more specifically Greece. After not hearing about Greece for a few months, the most recent elections and leadership debacle have brought the bankrupt country back into the headlines. Greece will be heading for another round of elections in June to hopefully get more leadership clarity as the countries fiscal situation spirals out of control. According to analysts there is now clearly a run on Greek banks as London recently reported a 40% spike in the number in Greek’s looking for places to buy or rent and to safeguard their money.
In the US, most economic data continues its positive trending. Most recently the housing sector has reported the home builders sentiment index hitting a 5 year high. In other housing news the Commerce Department reported housing starts are up 2.6% to a 3 year high, beating estimates. Furthermore, mortgage rates recently dropped to their new all time low of about 3.80% on a 30 year fixed. US housing foreclosures also hit a 5 year low in April 2012, down 5% from March and down 14% from the same time 1 year ago.
In other news, the Facebook IPO hit markets on Friday, May 18th trading in the $38-40/share range. The companies market capitalization is around $100 billion, making it the largest ever US company at the time of its debut on the publicly traded markets. It’s truly amazing to think that this company was started only 8 short years ago by a Harvard student (Mark Zuckerberg) in his dorm room!
PLEASE NOTE: The preceding comments about Facebook are meant for historical purposes only and DO NOT constitute a recommendation to buy or sell the stock.
*This is for illustrative purposes only and is not indicative of any investments. Investment value will fluctuate with market conditions. Past performance is no guarantee of future results.
(Sources: finance.yahoo.com, www.bloomberg.com, IInvestors Business daily. www.economy.com, www.ny.frb.org, www.newyorkfed.com, www.mworld.com, www.htrnews.com, www.wsj.com)
