10 Scary Financial Headlines You Don’t Need to Fear

Big market losses, disappointing economic reports need to be put in perspective

     

June has not been kind to investors. It began with what the press told us was the “largest one-day loss in over nine months,” with the Dow falling 279 points, or 2.2%, on June 1. What’s more, that decline locked in the fifth-straight negative week, something that the press told us hadn’t happened since the terrible market crisis of 2008.

The press is usually negative, but June has been a bad-news bonanza, so I’d like to go over 10 of the most negative headlines and turn them on their ear, statistically. Maybe by the end of this exercise, you will be able to smell the roses in your garden instead of dodging all those well-publicized nettles in the forest.

The Positive Angle Behind 10 Scary Headlines

At the start of June, the Wall Street Journal’s headlines naturally focused on the negative news. The June 1 headline was “Housing Imperils Recovery,” while June 2 was “Economic Outlook Darkens.” In addition, the talking heads of CNBC counted down the “start of hurricane season” and “June’s dismal market history,” but these scare-mongers ignored any historical perspective that revealed a positive angle.

Here are 10 short examples of what I’m talking about:

No. 1: We’ve suffered the “largest one-day loss in nine months.”

The 2.2% decline on June 1 seemed dramatic. But if you go deeper into the statistical archives you will discover that there were 13 larger one-day losses in the first 17 months of this bull market and the market kept rising after those 13 larger losses.

No. 2: The “market is off 5% from its April 29 peak.”

True, but there were seven previous corrections of 5% or more during the past 27 months and the market quickly recovered from each 5% correction. Last year at this time, the S&P 500 fell 15% from April 29 to July 2, but then it rallied 30% since last July.

No. 3: May and early June have delivered six straight falling weeks in the major averages.

That is a very silly statistic. There were seven straight rising weeks last December and January, and that meant nothing, either. When the weekly declines (or gains) are small — as they have been recently — they mean nothing.

No. 4: June is one of the weakest months in market history (No. 11 of 12 for the Dow and No. 9 of 12 for the S&P).

But they fail to distinguish the even-stronger gravitational pull of the election cycle. During the third year of the presidential cycle, the S&P is up an average 1.6% in June and 6.2% for the rest of the year. Since 1951, the market has risen 12 of 15 times from June 1 to year’s end in this part of the cycle. In the last four third years (1995, 1999, 2003 and 2007), the S&P is up an average 10.4% after June 1.

No. 5: Earnings growth is slowing down.

But that’s due to stronger year-over-year comparisons from 2010. The S&P 500 reported record earnings last quarter. All 10 S&P sectors exceeded analysts’ consensus estimates and all 10 S&P sectors have seen their 2011 revenue forecasts improve in the past three months. Analysts now expect S&P 500 revenue growth of 10% in 2011, earnings growth of 17.6% and a profit margin of 9.6%. Those numbers dwarf the expected GDP growth of 2% or the rather tepid market rise.

 
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