Financial Insight: Brutally efficient head fake?



Reader Tabitha S. (like me, an avid San Francisco 49er fan) so adored my conclusion to last week’s newsletter, that she remarked that “the U.S. markets ankles must have ruptured, Achilles tendons exploded and knees buckled, as Friday’s market collapse was like seeing a linebacker destroyed by an opposing teams wide receiver, who just tossed him aside with a head fake and stiff arm as he charged down the field.”  What a great summation Tabitha, and thank you for the reminder that the NFL season begins afresh in less than 100 days.

The US equities bobbed and weaved last week as the economic data didn’t impress and the markets reacted to the downside.  Friday’s gut punch, in my opinion, was the last opportunity to “sell in May and go away” and that’s exactly what transpired when investors pent up anxiety finally decided to make an appearance based upon concern that the Fed is considering to wind down its Quantitative Easing (QE)program and shareholders took their profits and headed for the door.  Last week’s market pullback sent the Dow Jones 1.2% lower, leaving the May gain at 2.8%; the S&P500 down 1.1% on the week, for a 2.1% monthly gain; and the NASDAQ 0.1% lower for a 4.8% monthly ascent.

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The first half of 2013 has provided some very noteworthy numbers for the U.S. markets with the Dow reporting a solid 15.35% gain, the NASDAQ registering 14.45% and the S&P 500 sitting at 14.34%.  All fine representations for performance, and as we begin to close out Q2 and enter into the second half of the year.  A dose of uncertainty is making headway into the overall picture with doubts over the Fed’s monetary direction, enduring, tepid manufacturing growth and continued high unemployment are being matched with a number of negative global circumstances:   the appearance of waning Chinese growth, sharp decline in Japanese shares, continued European recession and record high unemployment of 12.2% and Middle East turmoil.  Has the first half of 2013 been just a brutal head fake?

I remain optimistic.  Fatigue within the markets would be expected and to be honest, welcomed, as we enter the summer.  A shallow pullback to allow the overheated indexes to recoil and allow the sweltering temperatures of summer to replace the red hot equity markets wouldn’t necessarily be a bad thing.  To use an automotive analogy; check the radiator fluid, hoses and gaskets, replace the plugs and wires, change the oil and filters, rotate the tires; we’ve got another seven months to go.  Nobody wants to break down on that desolate highway, 500 miles into the desert, with buzzard’s and coyotes circling around for an easy kill.   May’s monthly nonfarm payroll report that may decide the fate of Federal Reserve’s policymaking regarding its aggressive bond buying program; given its importance,  Friday release will perhaps have more than the usual interest.   I remain cautious, confident and optimistic.


Have an outstanding week!


Much success in all that you do.


Dempster R. “Bobby” Cherry
Investment Advisor
Nelson Securities, Inc.

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