by Louis Navellier | June 13, 2011 1:17 pm
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.
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.
No. 6: The ISM manufacturing survey had its worst fall since 1984, from 60.4 to 53.5.
OK, but 53.5 still represents growth! ISM Chairman Bradley Holcomb said that historical readings of 53.5 correspond to a real GDP growth rate of 3.8%. Besides, 1984 was a great time to invest! It was the third year of a big bull market after a “lost decade” of no stock gains, just like now: 1984 was just the start of a big bull market.
Bonus fact: The ISM services index rose from 52.8 in April to 54.6 in May. The service sector is more important: It accounts for about 75% of all U.S. economic activity and 80% of all U.S. jobs. Fully 16 of the 18 service sectors tracked by ISM reported growth. Anthony Nieves, the ISM survey’s director, said that “respondents’ comments are mostly positive about overall business conditions!”
No. 7: The Case-Shiller housing index fell sharply.
This survey is limited to 20 big urban areas. Besides, declining home prices means a rise in home affordability. The National Association of Home Builders’ Housing Opportunity Index shows that families earning the national median income ($64,400) can now afford 75% of homes sold last month, up from only 40.4% affordability at the 2006 bubble peak. In addition, with the U.S. dollar down, more foreigners can buy homes in cheaper U.S. dollars. The United States also enjoys more immigration than any other land, providing a market for those millions of cheap homes.
No. 8: Only 54,000 net new jobs were created in April.
But the dead hand of government is shrinking, with 29,000 fewer government jobs, so the private sector actually created 83,000 jobs in May. In addition, many of these job losses were due to weather disasters, including the shortage of auto parts from Japan. There will likely be outsized job gains in the second half of this year. (Job growth is a lagging indicator.)
No. 9: The budget deficit is growing.
Yes, but let’s at least be thankful that there are no new stimulus (spending) packages. Nobody is talking about new spending these days, even though they disagree about what programs to cut. That’s some sort of progress. First, you go “cold turkey,” then you make your amends.
No. 10: “Hurricane season has begun.”
CNBC had a countdown clock to hurricane season. But if you look at the history of the 35 worst hurricanes to hit Florida in the last 160 years, only one came before mid-August. Of the 32 Category 5 hurricanes to hit America since 1924, none has hit before mid-August.
After hurricanes Katrina, Rita and Wilma in 2005, we were told hurricanes would get worse each year, but hurricane seasons have been relatively benign the last five years, despite greater tornado activity.
So, please, before you go freaking out about the next bad market headline, take a moment to put it in perspective.
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