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Commentary and market review for May follows. 

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Tom
Crow Financial

MAY MARKET COMMENTARY

By Tom Crow
June 4, 2012

 

 

Gain (Loss) by Period

Index

Month End

Month

Most Recent Quarter

Year-to-Date

Trailing Twelve Months

Dow Industrials

12,393

(6.2%)

(4.3%)

1.4%

(1.4%)

S&P 500

1,310

(6.3%)

(4.1%)

4.2%

(2.6%)

Nasdaq

2,827

(7.2%)

(4.7%)

8.5%

(0.3%)

  

Sell in May and walk away was in full force as multiple factors drove investors from the markets. The Dow and Nasdaq suffered their worst monthly declines in over two years. The S&P's volatility index (VIX) is still well below its recent highs from last fall, but it is moving higher, up almost 30% over the past two months.

Every so often I like to include some long-term perspective to the current market. On December 31, 1999, the S&P 500 was at 1,469, almost 11% higher than it is right now. It peaked at over 1,525 in March of 2000 and then immediately began an almost 50% drop that bottomed in October of 2002. It climbed back to a new all time high of 1,565 in October of 2007, only to crash even harder this time, giving up almost 57% before turning around in March of 2009.

After bouncing off their 50-day moving averages a few times last month, the indices spent most of May beneath them. A pullback of this magnitude usually indicates a bounce is imminent, but the technicians are saying if we get one, we should sell into it. This activity is not all technical. Reasons investors aren't getting behind this market reach far beyond our shores and the impending elections.

JP Morgan's huge trading loss helped it become one of the S&P 500's worst-performing stocks of the month. That, coupled with Facebook's less-than-inspiring IPO has done nothing to boost investor confidence. We did not participate in Facebook's first day of trading, nor have we touched it since. When the 90-day lockup expires on the restricted shares owned by employees and insiders, many will sell and it will go lower.

Germany is playing a game of economic "chicken" with the US. The Fed wants to use inflation to devalue our way out of debt. In theory, when dollars are worth less because we have lots more of them flooding the economy, it is easier for us to pay down our debt. However, the folks who have bought our debt are not happy about getting paid off with dollars that are worth less. To counter this, Germany issued their 2-year bonds this week at or near 0%, effectively weakening their currency and strengthening the dollar. Our markets like a weaker dollar.

The US grew at an annualized rate of only 1.9% for the first quarter. This is in line with expectations, and unfortunately, not expected to change much until later this fall. The US has not seen GDP above 3% since late 2010, which was the last time inflation was less than 2%. When GDP is growing slower than inflation we're still in economic contraction, and estimates are for this to continue through 2013 at least.

The economies of Brazil, South Korea and China are all cooling off a bit. Adding this to the weakness in most of Europe and it looks like odds for another global recession are increasing, which will be doubly devastating as we never really got out of the last one, except on paper.

The Chicago Purchasing Managers index was down to "recession levels" and more than expected to 52.7. This is just another sign of continued weakness heading into the summer months. With most estimates of recovery now pushed back to 2014, we could be looking at many more months of volatile, yet directionless markets. Safe-haven, defensive stocks that pay decent dividends may be the only place to ride this out.

With all the bad news floating around, why isn't gold moving higher? It all depends on your perspective. In mid-2010, gold broke out above $1,200 and shot up to just under $1,800 in about 13 months. It has since pulled back to $1,557, coming off a recent low of $1,532. I believe the gold hysteria has about run its course. It will continue to be a good short-term hedge against inflation, but it was clearly overbought earlier, and calls for $2,000 (and higher) gold are diminishing.

Employment numbers for May paint an increasingly dismal picture. The media focuses on the rising unemployment rate, but an increase from 8.1% to 8.2% when more people entered, or returned to the workforce is the least of our worries. Analysts expected 165,000 jobs and got 69,000. Of even more concern were the downward revisions to March and April numbers indicating 49,000 fewer jobs were created than were reported.

The markets did not respond to the employment numbers well at all and wiped out the gains for the entire year within minutes of the open.

Since our oldest just graduated from high-school and is now college-bound, an article from the May 30th online issue of Advisor One caught my attention (and his.) It is summarized below. Please feel free to share!

Skyrocketing college prices are enough to make one wonder if that degree is worth the cost. The National Bureau of Economic Research looked at factors that affect the pay graduates can expect to earn in different disciplines. According to the College Board, the average in-state tuition at a public university was $8,244 (more than double that if you include room and board and other fees) for the 2011-'12 academic year. For those who come from out of state, the figure rises to $20,770 ($29,657 total). For private, not-for-profit colleges the average was $28,500 ($38,589 total).

With those costs in mind, the study could be seen as a guide for college students when choosing a career. Setting aside the more prosaic reasons for choosing a line of work, such as finding something you love to do, students should use the report as a baseline for their expectations of the job market.

An interesting highlight of the report is the monetary benefit gained by earning an advanced degree. In some fields the benefit of extra course work is huge. Biological science majors, for instance, earn 51% more than those with a four-year degree. On the other end of the spectrum, communications majors earn just a 4% premium for a higher degree.

The report includes the earnings of those in the top 10% in that degree's field, which is not necessarily related to holding an advanced degree. With that perspective, the top 15 best paying degrees from lowest to highest are:

15. Letters - Average Hourly Pay:  $27.41, Pay for Top 10%:  $46.35. Letters is a broad discipline and graduates often find their own career paths. Grads can boost their pay by an average of 13% with an advanced degree.

14. Biological Science - Average Hourly Pay:  $27.26, Pay for Top 10%:  $46.08. Grads earning biological science degrees can increase their wages by a whopping 51%, to an average of $41.27, by spending extra time in the classroom.

13. Communications - Average Hourly Pay:  $28.17, Pay for Top 10%:  $49.02. Most journalists don't get into the business to make money, and the average wage in this category proves them right. PR professionals are also in this category. At an average of 4% higher earnings, an advanced degree won't bring much of a pay bump.

12. History - Average Hourly Pay:  $29.52, Pay for Top 10%:  $49.02. Graduate studies provide a nice pay hike of 22% in this field because the most sought after, higher-end jobs, like museum curators require more than a bachelor's.

11. Nursing - Average Hourly Pay:  $31.12, Pay for Top 10%:  $46.08. With the aging population, this field expects to be generating more jobs than candidates. More schooling will only add about 8% to the paycheck.

10. Business Management and Administration - Average Hourly Pay:  $31.56, Pay for Top 10%:  $51.96. This is another category where studying more has a debatable benefit as average wages rise only 6% with an advanced degree.

9. Marketing - Average Hourly Pay:  $32.90, Pay for Top 10%:  $57.29. Marketing is another discipline probably best studied for just four years. A higher degree adds only 4% to the average salary.

8. Political Science - Average Hourly Pay:  $33.32, Pay for Top 10%:  $57.25. With all the money flowing into election campaigns, it's no wonder this is a decent paying career path, though many in this area get law degrees. Grads will see an average 26% spike in salary with a graduate degree.

7. Computers and IT - Average Hourly Pay:  $35.83, Pay for Top 10%:  $56.37. Obviously, this is a hot area that keeps getting hotter. A second degree will add about 6% to the average paycheck.

6. Accounting - Average Hourly Pay:  $36.88, Pay for Top 10%:  $60.33. Keeping track of the money is important in every business, and accounting majors can do well. A graduate degree boosts pay by an average of 7%.

5. Mathematics - Average Hourly Pay:  $37.36, Pay for Top 10%:  $63.73. This is another field dealing with numbers and having broad application and prospects. Add some more class time to the equation and you can earn 13% more.

4. Finance - Average Hourly Pay:  $38.21, Pay for Top 10%:  $65.36. Finance is high on the list, too, and that extra degree bumps up the salary 11%.

3. Mechanical Engineering - Average Hourly Pay:  $40.43, Pay for Top 10%:  $58.82. This is the first degree on the list to crack the $40 barrier, and with graduate studies a grad can earn 9% more.

2. Electrical Engineering - Average Hourly Pay:  $41.61, Pay for Top 10%:  $63.24. Electrical Engineers do a little better than their mechanical colleagues, and an advanced degree can earn them even more, to the tune of an average of 12%. Many electrical engineers work in robotics.

1. Economics - Average Hourly Pay:  $43.15, Pay for Top 10%:  $78.43. If math rules, then economics is at the very top. A graduate degree nets an average 17% pay hike which puts you above $50. It is also the degree that has the highest pay for those in the top 10%. You don't necessarily need a degree to work on the floor of the Stock Exchange, but most Wall Street jobs are where the money's at.

We'll do this again next month. In the meantime, please call or e-mail if you have questions or comments.