The market has now fallen for five weeks in a row, so the “sell in May and go away” crowd seems to have a lot of bragging rights, but the five-week decline is only 4.65% and there is good reason to believe that the market’s mini-correction since May 1 has been a “pause that refreshes” and not a premature end of the bull market. We may just be in the “half-time break” of a bull market in which the economy is growing (albeit more slowly than in 2010) while earnings keep rising at a double-digit rate.

New Spirit of Negativism Dominates the News

I have to say that I was taken aback by all the negative news on CNBC last week. On the first day of June, the talking heads on CNBC felt compelled to remind us that June is usually a negative market month, but they forgot to mention that in the third year of a Presidential election cycle, June has usually been a rising month. CNBC also announced the start of hurricane season on June 1, but as a Florida resident, I can tell you that hurricanes are fairly rare in June and July. I guess fear and terror still sell!

While the financial media tries to scare you with everything and anything that could go wrong, they will likely forget all about earnings during the “dead season” from mid-May to mid-July. However, the S&P 500 reported record earnings last quarter. All 10 S&P sectors exceeded analysts’ consensus estimates!

Turning to the economy, the news media posted a laundry list of all the negative economic news released last week, including a weaker-than-expected ADP report, a sharp decline in the ISM manufacturing index, a big drop in the Conference Board’s consumer confidence number and the dismal May payroll report.

Here’s a capsule summary of the bad news that dominated the Web, TV and printed news last week:

On Tuesday, the folks at Standard & Poor’s/Case-Shiller reported that their 20-city home price index fell to its lowest level since 2002, falling for the eighth month in a row. Clearly, any rebound in housing cannot occur while 11% of all U.S. homes remain unoccupied and the banking industry owns 872,000 homes that must eventually be sold in foreclosure.

Also on Tuesday, the Conference Board announced that its consumer confidence index declined to 60.8 in May, down from a revised 66 in April. This was truly shocking, since economists had expected a rise to 67.5. Consumer confidence and expectations are now at six month lows.

On Wednesday, the Institute for Supply Management (ISM) announced that its manufacturing index fell to 53.5 in May, down from 60.4 in April, marking the third straight monthly decline and the biggest one-month drop since 1984! Economists had expected a smaller decline to 57.1. The good news is that any reading over 50 means that the manufacturing sector is still growing.

Overall, it was obvious last week that most economists could not hit the broad side of the barn with their statistical estimates. The bulk of the evidence is that we are in the midst of a “summer swoon.” Whether this economic stutter step is the “pause that refreshes” or the dreaded “double-dip” remains to be seen. I don’t want to sugar coat any of these numbers, since they certainly reflect a slower-than-average economic recovery, but the fact of the matter is that we can all run around like Chicken Little and say that the “sky is falling,” or we can look at specific companies and the overall growth in corporate earnings.

Mixed News on the Jobs Front

As if all the other negative news listed above weren’t bad enough, the Labor Department’s announced on Friday that May’s non-farm payrolls grew by only 54,000 jobs. That was consistent with Wednesday’s ADP report that only 39,000 private sector jobs were created in May. Economists expected 125,000 new payroll jobs in May. Not surprisingly, the unemployment rate rose to 9.1% in May, up from 9% in April.

Another piece of bad news is that the Labor Department revised its payroll growth for March and April down by 39,000 jobs to 194,000 and 232,000, respectively. Even more fascinating, Morgan Stanley estimated that McDonald’s (NYSE: MCD) recent hiring spree accounted for 25,000 to 30,000 of April’s new jobs!

There was also some good news last week: On Thursday, 24 retailers tracked by Thomson Reuters posted 4.9% same-store sales growth in May, proving that consumers are still spending. For example, Saks (NYSE: SKS) reported a 20% jump in same-store sale due it its big spring sale. Costco (NASDAQ: COST) reported a 13% same-store sales gain (or 7%, excluding gasoline sales) and Nordstrom (NYSE: JWN) posted a better-than-expected 7.4% same-store sales gain. Michael Exstein, retail analyst at Credit Suisse, said that “the high end has done a better job of controlling inventories, leading to further momentum in full-price selling,” lifting both sales and profits.

The same trend is apparent in vehicle sales. The low-end bargains and high-end luxury sales are rising, while the mid-level or “normal” products are not moving so well. To get a feeling for the car market, I called one of my clients, who operates 10 dealerships in multiple states. He told me that the low-end (Korean imports) and high-end (Mercedes and Porsche) are doing well, but the middle is struggling, especially pickup trucks and SUVs with V8 engines. This is a clear sign that high gasoline prices are impacting sales of Detroit’s most profitable vehicles. General Motors’ (NYSE: GM) retail sales rose 9% in May, but its fleet sales declined by 16%, so weaker business spending seems to be the big culprit behind GM’s recent woes.

Due to the fact that same-store sales remains relatively strong (and McDonald’s is hiring!), it should be no surprise that the U.S. services sector is continuing to expand. On Friday, the ISM services index rose to 54.6 in May, up from 52.8 in April, slightly beating economists’ consensus expectations of a rise to 54. The service sector accounts for about 75% of all U.S. economic activity and 80% of all U.S. jobs, so the ISM services sector survey was the best news last week. Fully 16 of the 18 service sectors tracked by ISM reported growth, with mining, utilities and arts and entertainment leading the way. Anthony Nieves, the survey’s director, said “respondents’ comments are mostly positive about overall business conditions!”

U.S. Dollar’s Latest Decline Should Boost Stocks

The U.S. dollar remained on a slippery slope last week after the onslaught of weak economic news caused 10-year Treasury bond yields to plunge below 3%. This made Treasury securities even less attractive to foreign investors, depressing the dollar even further. Then, Moody’s said on Thursday that if there is no imminent progress on the federal debt ceiling legislation, America’s AAA credit rating will soon be cut.

Low interest rates naturally caused money to gravitate to the stock market. The weak dollar will also help to generate windfall corporate profits for multi-national companies. Longer term, a weak U.S. dollar also makes the United States more competitive in the world and helps to stimulate economic growth. In other words, low interest rates and a weak U.S. dollar are very bullish developments for the stock market this summer.

According to a Treasury Department report, China has reduced its ownership of short-term U.S. Treasury bills by 97%, falling from a peak of $210.4 billion in May 2009 to only $5.69 billion in March 2011! Additionally, since October 2010, China has also been divesting its long-term Treasury bonds holdings. Clearly, China does not like to see an eroding U.S. dollar on top of extremely low interest rates. This is raising even more speculation about what will happen when the Fed ends its second round of quantitative easing (QE2) later this week. Who will buy Treasury bonds after the Fed ends its bond-buying spree?

Interestingly the euro was super strong last week thanks to Greece. News broke early last week that Greece was in line for a new 30 billion euro ($44 billion) bridge loan to meet it funding gaps in 2012, and possibly into 2013. Then on Friday, the European Union (EU), the European Central Bank (ECB) and the International Monetary Fund (IMF), after weeks of reviewing Greece’s budget accounting, issued a statement saying that Greece was making good progress on its economic reforms! Since Greece received its EU, ECB and IMF bailout, the country has actually cut its budget deficit by about one-third!

On a final note, one of President Obama’s biggest cheerleaders, The New York Times, wrote on Thursday that no U.S. President since Franklin Delano Roosevelt has won a second term when the unemployment rate exceed 7.2%. Clearly, the Republicans, now led by Mitt Romney, will hammer President Obama on unemployment, falling home prices, high gasoline prices and a weak U.S. dollar that sends food prices up. With the news media (The New York Times, CNBC, etc.) focusing on bad news, voter unrest may grow.

Bottom line, the current low-interest-rate environment is a plus for stocks, since it will push the frustrated fixed-income (bond) investors back into the stock market in search of higher yields, especially after the end of QE2 this week. Today’s artificially low yield on long-term bonds has also encouraged corporate America to issue more new corporate bonds, to fuel their merger mania and stock buybacks. This has helped set a firm foundation (which could become a launching pad) under the stock market, especially if analysts’ earnings estimates continue to rise during the June “earnings pre-announcement” season.