The stock market began June with a strong rally, thanks to another wave of benign economic data. But some investors are nervous that the month, traditionally a weak one for stocks, may not end well.
NEW YORK (AP) — The stock market began June with a strong rally, thanks to another wave of benign economic data.
But some investors are nervous that the month, traditionally a weak one for stocks, may not end well.
Traders homed in Monday on better-than-expected readings on manufacturing, consumer spending and construction spending. The Dow Jones industrial average and other major indexes rose more than 2 percent, and the Standard & Poor’s 500 index and Nasdaq composite rose to their highest levels this year.
The economic data suggested the economy’s decline is moderating, but did not yet show a rebound. Personal spending was down slightly in April, personal incomes were flat and U.S. manufacturing activity contracted for the 16th straight month in May, although at a slower pace.
Monday also brought General Motors Corp.’s bankruptcy filing, the fourth-largest in U.S. history. The filing was not shocking, but served as a reminder of the government’s heavy involvement in corporate America following last year’s market crash and economic tumble.
Separately, a trend that had ruffled investors last week — falling Treasury prices and surging yields — resumed on Monday, but the stock market shrugged it off. A spike in long-term Treasury yields last week had upset stock investors with worries that interest rates on consumer loans such as mortgages could go higher, potentially threatening an economic recovery.
Despite the appearance that stocks are resuming their forward march on hopes for a turnaround in the economy, a number of analysts still think the market has come too far, too fast in the past three months since hitting 12-year lows in early March.
“I can’t really buy into today’s super-happy stock market,” said Kim Caughey, equity research analyst at Fort Pitt Capital Group. She said she was skeptical because even if the economy is stabilizing, there is little to drive demand once it bottoms.
According to preliminary calculations, the Dow rose 221.11, or 2.6 percent, to 8,721.44. The Standard & Poor’s 500 index rose 23.73, or 2.6 percent, to 942.87. The Nasdaq composite index rose 54.35, or 3.1 percent, to 1,828.68.
So far, this year’s stock market has had an eerily similar pattern to last year’s, noted Shaeffer’s Investment Research analyst Todd Salamone, falling until mid-March, then gaining sharply through May. Last year in June, the market started sinking. Salamone pointed out that June’s average return during the past 20 years is negative 0.5 percent.
Standard & Poor’s chief economist David Wyss said he expects the U.S. economy to bottom out late this summer or early in the fall, but then experience a “rather sluggish” recovery. He predicted U.S. gross domestic product — which measures the value of all goods and services produced in the country — to drop 3.1 percent this year, with even sharper declines in European economies and Japan.
The market still rallied on Monday, though, because it wasn’t just economic data that encouraged buying. Technical factors did, too. The first trading day of the month often brings with it a surge of new money from mutual funds, and meanwhile, the S&P broke through its 200-day moving average. That’s a key development that hasn’t occurred in over a year.