With the Dow Jones Industrial Average and the Standard & Poor's 500
index setting another string of record closing highs last week, the old
Wall Street adage – "Sell in May and Go Away" – is starting to look
weak.
Closing out the second week of May, the S&P 500 is up 2.3 percent
for the month. For the year, the benchmark index gained a stunning 14.6
percent.
Some analysts say that when the market starts off this strong, it
tends to keep the upward momentum going until the end of the year.
"Instead of 'Sell in May and Go Away,' we may be setting up for a
surprise May rally," said Ryan Detrick, senior technical analyst at
Schaeffer's Investment Research in Cincinnati, Ohio.
"What's encouraging is that small-cap stocks have been outperforming
the market recently. It's a sign that the market is going for even the
riskiest sectors."
Both the Dow industrials and the S&P 500 topped major milestones
for the first time in early May, with the Dow Jones industrial average
surpassing 15,000 and the S&P 500 breaking through the 1,600 mark.
Since then, the indexes have been steadily holding above the landmark
levels. The Nasdaq Composite Index has climbed to the highest closing
levels in 12-1/2 years.
In a sign of the rally's breadth, the Russell 2000 index of mid- and small-cap stocks also hit all-time highs recently.
Technical analysts say the next level to watch would be 1,660 on the S&P 500.
"The main question is whether the bulls can maintain the 1,600 level
on the S&P 500 for another week," said Ari Wald, a technical analyst
at PrinceRidge Group, a New York-based investment bank.
"If it does, the next level is 1,660. But with markets already this high, it won't be easy."
Despite lingering concerns about a technical pullback, the market's
strong performance so far this year has also increased the chances of
equities rallying throughout the year, according to some analysts.
"With the market up so much, can it continue to make gains over the
next seven months through year end? At least based on history, it has a
better chance of continuing higher during strong years than when it is
not up significantly," Bespoke Investment Group analysts wrote in a note
to clients.
Bespoke noted that this year is only the 11th-best start to a year
since 1991, when the index gained another 9.7 percent for the rest of
the year.
If 2013 plays out like that - with another 9.7 percent gain in store
for the S&P 500 - the broad index would finish the year up a
whopping 24.3 percent.
LAGGARDS PLAY CATCH-UP
Among recent gainers, sectors closely tied to economic growth such as
technology and financial stocks have been catching up after lagging for
most of the year.
"We are seeing the once beaten-down stocks making a comeback," Wald
said. "It's been sort of a rotation of leadership that has been taking
place for a month or so. It will be interesting to see if this can last"
into next week.
The S&P financial sector index is up about 2 percent for the
month, while the S&P information technology sector is up about 3
percent.
For some perspective, the tech sector has a way to go, when compared
with defensive sectors like utilities. The S&P utility sector index
is up more than 13 percent for the year, while the S&P info tech
sector index rose less than 8 percent.
CONSUMER IN THE DRIVER'S SEAT
The American consumer will get Wall Street's attention this week when
a raft of economic data and retailers' earnings could shed some light
on whether they shopped for more than just the bare necessities.
Retail sales for April will be released on Monday by the U.S. Commerce Department.
"It (retail sales) will be a chance to look at the real picture after
weak numbers last month on sequestration and other (external) factors,"
said Karyn Cavanaugh, a market strategist at ING U.S. Investment
Management in New York.
"The market is driven by good fundamentals from corporate earnings,
but it's really the consumers that take up 70 percent of our economy.
They are a real game changer."
Other economic data on tap includes April import and export prices on
Tuesday, followed on Wednesday by the U.S. Producer Price Index for
April, the Empire State Index for May, industrial production and
capacity utilization for April, and the National Association of Home
Builders Index for May.
On Thursday, the economic agenda includes the U.S. Consumer Price
index for April, housing starts for April, weekly jobless claims and the
Philadelphia Fed's survey for May.
Wall Street will get a look at consumer sentiment on Friday, when the
Thomson Reuters/University of Michigan Surveys of Consumers will
release its preliminary reading for May.
On the earnings front, a number of retailers are scheduled to report
results, including Macy's Inc on Wednesday. Results from J.C. Penney Co
Inc, Nordstrom Inc, Kohl's Corp and Wal-Mart are expected on Thursday.
With 89 percent of the S&P 500 companies having reported earnings
so far, 66.7 percent have topped profit expectations, above the average
of 63 percent since 1994. However, only 46.4 percent have beaten
revenue expectations, well under the average of 62 percent since 2002.
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