Following the worst May for stocks since 1962, June has likewise gotten off to a bad start. Despite two days of this shortened week finishing on the upside, the week as a whole lost 2.3% as measured by the S&P 500. The second quarter-to-date is now down by 8.6%, and 2010 is down by 3.7%. Stock prices reached their 2010 peak in late-April, but the rapid 12% decline from the highs over the last six weeks has put the year into negative territory and has reawakened fear among bullish investors.
This morning’s announcement that Hungary is now included among nations in danger of default supplemented the already palpable fear about much of Southern Europe’s solvency. That had pre-opening quotes for the U.S. markets leaning to the downside. There was considerable hope, however, that May employment statistics would confirm expectations that a substantial number of Americans found work last month. Those expectations were buoyed two days ago as the President and Vice-President both anticipated a strong labor report. When far fewer new jobs were reported in this morning’s release, pre-opening market prices plummeted. No rally attempts of any consequence developed, and prices eroded throughout the day to close very near their lows for the day and the week. It was evident that short-term traders wanted to avoid going home for the weekend with long positions. Volume continued its negative pattern of rising on the week’s down days and falling when the market advanced. For the second week in a row the S&P 500 tried unsuccessfully to rise above its 200 day moving average, which many technicians use as a line of demarcation between bullish and bearish market conditions. Today’s collapse away from that moving average did more technical damage. Little can be taken from this week to support the bullish case, except to say that stocks became more oversold and overdue for a rally.
Because conditions have not changed appreciably, I repeat my final thoughts from last week’s post, which are even timelier today.
“As the indexes remain severely oversold, the probabilities favor a rally soon. On the other hand, it is always worrisome when oversold markets don’t rally when they should. Some of the market’s biggest declines have occurred with conditions already oversold.
With the world financial system in a precarious condition, there is legitimate danger that a major mis-step somewhere in the world could unleash a cascade of stock market selling.”
Tom Feeney is the chief investment officer for Marathon Asset Management Co, a registered investment advisor with the Securities and Exchange Commission, and for Mission Management & Trust Co., a full service trust company regulated by the Arizona Department of Financial Institutions. If you would like to explore the management of an investment portfolio of $1 million or more by either of the firms, you are invited to email your interest to Tom@missiontrust.com or call (520) 529-2900 to speak with one of the Portfolio Coordinators.
