A Week in Review and a Look Ahead

June 1, 2009
Mike Doran

May marks the 3rd straight monthly rise for the Dow, which had the best 3-month percentage gain since 1998.

The Week in Review

The major averages finished higher on this holiday-shortened week with the S&P 500 +3.6%, Dow +2.7%, Nasdaq Comp +4.9%, Russell 2000 +5.0%.

It was a light week in terms of news and volume, with the biggest volatility due to gyrations in the bond market on Wednesday and Thursday. Last week, the average 30-year mortgage rate rose from about 5% to at least 5.25%, by most estimates, reaching as high as 5.5% for some lenders late in the week. Earlier this year, it was steady around 4.8%. Its recent peak was 6.5% last autumn.

Oil prices extended their rally to near their highest in seven months as dollar weakness, stock market optimism, and hope for economic reflation supported the oil market's best monthly gains in a decade (+29%). Gold is trading at almost 980 (+10% this month) also reflecting the weak USD.

The adage of "sell in May and go away" would have cost you over +4.74% (basis S&P 500) this May as the stock market's rally continued strong. May marks the 3rd straight monthly rise for the Dow, which had the best 3-month percentage gain since 1998.

A Look Ahead

This first week of the new month brings us a GM bankruptcy filing along with Motor Vehicle Sales, Personal Income & Spending, ISM Manufacturing, and Construction Spending on Monday. We get data on Pending Home Sales on Tuesday, Factory Orders and ISM services on Wednesday, interest rate announcements from the Bank of England, the European Central Bank, and the Bank of Canada, along with Productivity and Costs and weekly Jobless Claims on Thursday. The first Friday of the month (6/5) will bring the highly-anticipated Nonfarm Payrolls and Unemployment rate.

Be alert for changes in the Dow Jones Industrial Average as GM and Citigroup may get booted. There is also a headline risk with the Treasury Secretary visiting China in a trip to attempt to soothe their concerns regarding their $768 billion-plus investment in US Treasuries. He will need to show them how the US can prevent the value of their investment from being eroded by a weaker dollar or by runaway inflation from the stimulus money being pumped into the US economy.