Markets in a Nutshell
May 31, 2010 Issue
Stocks were mixed for the week. The Dow dropped 0.6% and is down 2.8% for the year. The S&P 500 rose 0.2% and is down 2.3% for 2010 while the Nasdaq gained 1.3% for the week to cut its 2010 loss to 0.5%. Bonds have done the usual job of holding up when stocks fall (not always the case but usually) as the Barclays Aggregate Bond index is up 3.7% for the year.
While it seems like everybody wants to buy gold, I get a little leery when I see so many pile in. The U.S. Mint reports that sales of gold coins have hit the highest levels since Dec. 2008 (which was record levels). Also there is a very large (274,769) number of net long gold futures contracts (many folks betting on gold prices going up) outstanding. So while gold certainly may go up over the next market cycle, when the theme is so heavily on the buy side, it usually means a sell off looming sometime in the near term.
While May was a rough month for stocks (Dow down 7.9%), Bespoke Investment Group (as reported in the Wall Street Journal 5/29-30) figures that historically big drops in May have often been followed by double digit gains over the following 3 months.
This is in the category “we will believe it when we see it” but it is perhaps a step in the right direction. The Investor’s Business Daily (5/28) reports that the U.S. House is looking to cut its latest new spending bill by about $50 billion to $143 billion. Now we realize this is a cut in a spending increase but we have to start somewhere to get the out of control spending by the govt. under some control. As we have reported here before, govt. annual deficits are north of 10% of GDP putting the U.S. in the same category as Spain, Greece, the U.K. as well as some of the other Western European nations in financial trouble.