Different Types of Stress Tests

  Yesterday, I went to the heart doctor for my first real checkout of the ticker – some sort of calcium test where they slide me through a $1.5 million tube and take pictures of my heart along with the traditional stress test on a treadmill.  Turns out I passed (a little early artery hardening that the doc said is normal for someone of my age and family history), but I hope my heart stays in good enough shape for me to make it to another secular bull market in stocks.  Otherwise, worrying over these financial markets may get me (or I’ll probably just get hit by a bus.)

The old adage, “Sell in May and go away,” proved correct once again as U.S. stocks experienced their worst month in two years last month, breaking a seven-month winning streak.  The S&P 500 finished the month at 1310.33, down -6.3% . 

The –11.2% decline from April highs has slightly exceeded our forecast drop of 6-10% during the second quarter, but June brings better prospects for the months ahead.  Before stocks get back on track, we must first wade through the mid-June elections in Greece and France.  And we will need to see evidence of a broad-based bottom and signs that a new advance is underway.  Selling pressure among stocks should give out if a true bottom is forming in stocks.  That means fewer stocks making new lows along with receding downside volume.  Additionally, sentiment indicators should be backing off of levels of extreme pessimism.

Excessive pessimism among investors, coupled with our belief that moderate global growth (outside of obvious pockets in southern Europe) remains the likely economic scenario, leave stocks susceptible to any positive surprises during the month of June.  We continue to expect a summer consolidation phase followed by a resumption of the global uptrend during the second half of the year.  But for now, it is what it is, and “what it is” is neutral.– Stacey Wall