After the Close - The month of May, which has historically been a difficult one for the equity market, actually turned out to be constructive for those long equities. Indeed, the age-old adage, “sell in May and go away,” to avoid a seasonal decline in the equity market did not materialize this year. The major U.S. equity averages finished the 30-day stretch in positive territory, which may be a harbinger that the equity market could be able to at least modestly build off of last year’s outsized gains. During the month of May, the Dow Jones Industrial Average, the NASDAQ, and the broader S&P 500 Index recorded gains of 0.8%, 3.1%, and 2.1%, respectively. The small-cap Russell 2000 and the S&P Mid-Cap 400 Index also finished the week higher, but the big winner was the tech-heavy NASDAQ, even with today’s indecisive outcome.

We think there were a few factors behind the positive performance for stocks this past month, not the least of which was a better-than-anticipated first-quarter earnings season, which saw a good number of S&P 500 companies beat their previously lowered expectations. Too, the economic news was decent, but certainly not great, and the likelihood is that some of the recent weakness was weather related and thus the U.S. economy is likely to rebound from a difficult first quarter that saw GDP contract by 1.0%. Moreover, investors feel that the likely forthcoming growth is not formidable enough to push the central bank to aggressively exit its accommodative monetary policies, particularly when it comes to bond-buying tapering, which has been done gradually. In fact, the stock market rallied earlier this month when the minutes from the latest Federal Open Market Committee meeting showed that Federal Reserve plans to keep short-term interest rates near zero for the foreseeable future. Such a low interest-rate environment also tends to keep more investors in stocks, as there are simply few attractive alternative investments—and that thesis certainly seems to be in play these days.

Turning back to today, it was a pretty nondescript performance for Wall Street. At no point did the major averages stray notably from the neutral line in either direction. It was a rather directionless day for equities, as the mixture of up and down arrows among the 10 major sectors would attest. The big laggards were the basic materials stocks. Within that space, the mining & metals and the steel issues were under heavy selling pressure, with high-profile names such as U.S. Steel (X), Cliff Natural Resources (CLF), and Rio Tinto (RIO) all finishing the session lower. There also seemed to be some sector rotation in play, with modest movement out of the cyclical groups and into the noncyclical areas. To this end, there was interest in the utilities and consumer staples sectors.

We did get some news from both the business beat and the corporate world. On the economic front, the Commerce Department released a mixed report on personal income and outlays for the month of April. Specifically, personal spending rose by 0.3%, while spending fell by 0.1%. The latter is a bit worrisome, as spending was expected to pick up a bit in April after the long and arduous winter. The government data were further compounded by a report 90 minutes later from the University of Michigan that showed consumer sentiment fell from 84.1 in April to 81.9 this month, as a gloomy view on income growth clouded an otherwise positive economic outlook. The University of Michigan reading was a bit below the consensus expectation. Not surprisingly, some of the consumer discretionary stocks, including those of the retail department store and casino and gaming companies, were weaker in the latest session. Meantime, we learned late in the session that Valeant Pharmaceuticals (VRX) has raised its offer once again to acquire industry peer Allergan (AGN). The latter concern had quickly rejected the prior offers. 

Looking ahead to next week, the first trading week of June, the investment community’s attention will likely remain on economy, with reports due on manufacturing and nonmanufacturing activity, vehicle sales, the trade gap, and employment and unemployment. Investors should also note that we will be getting the Federal Reserve’s latest Beige Book summation of economic conditions on Wednesday and the G7 meeting of seven of the eight leading industrialized nations will be held in Brussels—and will not include Russia as its annexation of Crimea has created ill feelings between that nation and the West. The European Central Bank (ECB) also will hold its monetary policy meeting next Thursday, which could be a game changer for the world equity markets, as there is a sense is that ECB will implement some stimulus measures to jump start its lackluster economies. -  William G. Ferguson

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.


12:20 PM EDT - The U.S. stock market got off to a weak start this morning, but has since stabilized. At just past noon in New York, the Dow Jones Industrial Average is off 21 points; but the broader S&P 500 Index and the NASDAQ are now at the breakeven line. Meanwhile, market breadth suggests a mixed tone to today’s session, too, as advancing stocks are about even with decliners on the NYSE. The market sectors show a divided session, as well. The high-yielding utilities are advancing. Further, the consumer names are making progress, with gains in some of the clothing and apparel stocks. However, there is considerable weakness in the basic materials area, as the metals and mining names are off sharply. Notably, commodities, such as gold and oil are trading lower, and that is not likely helping these issues.

Overall, the market now seems to be decently positioned, thanks to a small rally at the end of May. Notably, The NASDAQ has firmed up, too, and that is important. In the recent past, many traders had been concerned that the technology heavy index had diverged from its counterparts, the Dow and S&P 500. There still is a somewhat fragmented quality to the market, as there is a lack of clear sector leadership. However, more recently, investors seem more willing to buy the “growth” names and that is a positive sign.

Meanwhile, it was another day of mixed economic news. Specifically, personal income rose about 0.3% in April. However, personal spending declined 0.1% during the month, which may have some economists concerned. Meanwhile, the University of Michigan’s Consumer Sentiment Survey for May settled at 81.9, which was a bit below expectations. Elsewhere, the economy in the Chicago region picked up during the month of May.

Finally, traders received a few corporate reports this morning. In the technology area, shares of OmniVision (OVTI) are moving higher, as the technology company put out encouraging figures and guidance. In retailing, Big Lots (BIG) stock is rising after that company issued strong results. However, investors were not pleased with the news from Express (EXPR), as that issue is off sharply. – Adam Rosner

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.


Stock to Watch from The Survey - Although it is expected to be a relatively light trading day on Wall Street, there are a few names that investors will probably want to keep tabs on as we get set to exit May. Retailers top the list of our stocks to watch as earnings reports continue to trickle in. Most notably, discount retail chain Big Lots Inc. (BIG) is up double-digits ahead of the bell this morning after the company posted better-than-expected fiscal first-quarter earnings and raised its full-year forecast.  Meanwhile, specialty retailer Express, Inc. (EXPR) is down big in pre-market trading. The company said that its first-quarter results came up well short of expectations as promotional activity failed to get customers in the doors. It will also be interesting to see how the day shapes up for Guess Inc. (GES), Pacific Sunwear (PSUN), and Ann Inc. (ANN).

Elsewhere, Lions Gate Entertainment (LGF) is expected to be met with some resistance after the movie studio reported significantly lower fourth-quarter earnings late yesterday afternoon. Also, we are keeping an eye on software designers CA, Inc. (CA) and Oracle Corp. (ORCL) after news surfaced that both could be facing legal action. On a positive note, salesforce.com (CRM) announced that it has entered a strategic partnership with Microsoft (MSFT - Free Microsoft Stock Report). - Andre J. Costanza

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.


Before The Bell - The equity market rally, which had suffered a half-hearted interruption on Wednesday, was back in gear again yesterday, albeit this time with a bit more in the way of conviction. All told, the market ticked higher during the morning and went on to hold those gains during the early afternoon before taking on some momentum later on in the day, finally ending the trading session comfortably in the black. In the process, the Standard and Poor's 500 Index set another all-time high, rising further above 1,900. The Dow Jones Industrial Average, meanwhile, moved closer to its record high of 16,735, but even at its best levels of the session could not quite get there.

It should be noted that the last time the Standard and Poor's 500 Index ventured into such uncharted territory during the past two months, the stay was short, although the subsequent backtracking was modest. The Dow, by comparison, has, as noted, thus far been unable to advance to new heights, although it is now knocking on the door once again.

Helping the market yesterday was a better-than-expected showing in weekly jobless claims; such filings had fallen by 27,000 in the week, to 300,000. A much smaller decrease had been the expectation. That positive change helped to somewhat blunt a markedly disappointing economic report showing a downwardly revised first-quarter gross domestic decline of 1.0%. Last month, in its initial read on the quarter, the Commerce Department had estimated that GDP gained a scant 0.1% in the quarter. Expectations this time had been for a 0.6% drop in output. The worse-than-expected GDP performance was attributable to weaker construction metrics and lesser inventory accumulation than previously estimated.

Meanwhile, with the long and costly winter out of the way and with housing and industrial activity on the mend, it is likely that growth will step up nicely in the current period, increasing on the order of about 3%. A slightly better showing is then likely in the second half, with growth perhaps ticking up into the 3.0%-3.5% range.

As to yesterday's showing, gold edged a bit lower once again, although gold stocks saw some modest buying after a succession of daily losses for these equities over the past week, or so. Tech stocks also did well, with shares of Apple (AAPL) rising nicely on the news of a pending acquisition. Also, some defensive issues, such as the food processors had a good day, as did some drug stocks, as the poor GDP report caused a welcome move into a number of less cyclical names and sectors.

As to the final numbers, the Dow Jones Industrial Average rose by 66 points, with that blue chip composite rising close to 16,700; the S&P 500 Index added 10 points, to climb to 1,920; and the NASDAQ chipped in with a 23-point gain, bringing that tech-laden average up close to 4,250. Modest gains also were scored by the S&P Mid-Cap 400 Index and the small-cap dominated Russell 2000 Index. All in all, it was a solid win for the bulls, especially in light of the dour GDP report.

Now, looking to the final day of both the week and the month, we find that stocks were lower in Asia overnight, while they are generally pulling back in Europe so far this morning, although the markets on the Continent have been finding some support on expectations for increased stimulus activity next week, after European Central Bank President Mario Draghi pledged to ease monetary policy in June, if necessary, which it might well be.

Meanwhile, in U.S. markets, the S&P 500 and NASDAQ futures are off a bit in the pre-market, suggesting that there could be a modicum of profit taking when trading gets under way on our shores in less than an hour from now. Finally, in data just issued by the Commerce Department, the government affirmed that personal income had risen by 0.3% in April; that was on expectations, but it was a modestly smaller increase than in March, when the gain was 0.5%. However, consumer spending eased by 0.1% last month; an increase of 0.2% had been the consensus forecast. As to the showing so far this year, income gains have ranged from 0.3% to 0.5%, with the smallest increases logged in January and April. On the other hand, the spending dip follows increases logged in February and March of 0.5% and 0.8%, respectively. - Harvey S. Katz

At the time of this article's writing, the author did not have positions in any of the companies mentioned.