J.L. Davis Market Update 5/31/2010

QUOTE OF THE WEEK:
The person interested in success has to learn to view failure as a healthy, inevitable part of the process of getting to the top. - Dr. Joyce Brothers

THE MARKETS:
The month of the “flash crash” is finally over. In the end, the Dow managed to put together its worst May drop since 1940, and its biggest monthly drop since February 2009. The selloff snaps three straight months of gains, and marks the first major 10% correction since the bull market began over one year ago.

Extraordinary volatility saw the market rise or fall more than 1.5% on nearly half of the trading sessions in May, and investors didn’t like the feeling. Fear prompted a flight to safety as the overall sustainability of the economy was called into question. For the month, the Dow fell 7.9%, the S&P fell 8.2%, and the Nasdaq fell 8.3%.

On the bright side, some analysts are predicting that May’s slump will pave the way for a healthy summer rally. Conversely, while there are many positive signs of recovery in the U.S. economy, Europe’s debt crisis, combined with increased tension between North and South Korea, are key factors dragging stocks downward. And although Greece isn’t stealing quite so many headlines as a few weeks ago, many eyes are now focused on Portugal, Ireland, Italy, and Spain as the world wonders if the $1 Trillion aid package will be enough.

As traders return from a long holiday weekend, the big question is whether ongoing pressure will push the correction into a bear market – a selloff of at least 20% from a high – or if investors will treat recent declines as a buying opportunity.

Key things to watch this week:
Monday – U.S. Holiday: Memorial Day – Markets Closed
Tuesday – ISM Manufacturing Index, Construction Spending
Wednesday – Pending Home Sales
Thursday – Jobless Claims, Productivity and Costs, Factory Orders
Friday – Employment Situation

HEADLINES:
The numbers being batted around when it comes to how much the oil spill will ultimately cost BP and the local Gulf of Mexico economies are huge. $3 billion. $14 billion. One politician put it at over $100 billion. The range is so big because two important questions remain unanswered: When will the leak be sealed, and will most of the oil wash ashore? Until those are answered no one will know the price tag of the damages for sure.

Personal spending was flat in April, after six months of increases, while income rose, according to a government report released Friday. The Commerce Department said individual spending rose less than 0.1%, or $4 billion, last month after an upwardly revised 0.6% increase in March. Personal income climbed 0.4%, or $54.4 billion, in April following an upwardly revised 0.4% rise the month before.

The greenback on Friday notched its longest string of monthly gains, six in a row, against the euro since 2000 amid worries about massive debt and fiscal cutbacks needed in Europe -- and the euro made its biggest monthly drop since January 2009.

Several downtrodden U.S. cities are on the verge of defaulting on their debt, putting financially encumbered states and taxpayers on the hook to pick up the tab. The National League of Cities says municipal governments will probably come up $56 billion to $83 billion short between now and 2012.

Sales of newly built homes soared 14.8% in April from March as buyers rushed to take advantage of the expiring government tax credit. Sales in April were 47.8% higher than a year earlier.

Sources:
Marketwatch
The Wall Street Journal Online
Barrons
CNN Money
http://money.cnn.com/2010/05/30/news/economy/gulf_economy/index.htm http://www.marketwatch.com/story/dollar-falls-vs-euro-rises-vs-yen-in-asia-2010-05-31 http://money.cnn.com/2010/05/28/news/economy/american_cities_broke.fortune/index.htm http://money.cnn.com/2010/05/28/news/economy/personal_income/index.htm http://online.wsj.com/article/SB10001424052748704717004575268173355581314.html?mod=WSJ_hpp_MIDDLENexttoWhatsNewsThird

The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the Nasdaq. The DJIA was invented by Charles Dow back in 1896.

The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indexes from Europe, Australia and Southeast Asia.

The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

Google Finance is the source for any reference to the performance of an index between two specific periods.

Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

Past performance does not guarantee future results.

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These are the views of Platinum Advisor Marketing Strategies, LLC, not necessarily those of J.L. Davis or Multi Financial Securities Corporation, and should not be construed as investment advice (neither of whom gives tax or legal advice). All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.