WASHINGTON, June 3, 2013 — The stock market is starting out June better than it ended May. Or so it seemed. Markets are actually mixed around noon today with the big cap Dow up between 30-50 points and the other averages mixed or down. After a really bizarre iteration of “sell in May” last month, maybe it’s best to let sleeping dogs lie for a while, as with our pooped out pup pictured above.
Indexes stabilized in early trading Monday after finishing last month with a swoon late Friday afternoon.
The Dow was up 43 points at 15,167 as of 11:15 a.m. Eastern Daylight Time Monday, or 0.3 percent. It plunged 208 points Friday, its worst drop in six weeks. The Standard & Poor’s 500 index was down five points at 1,625, or 0.3 percent.
The Institute for Supply Management May index reported Monday that U.S. manufacturing contracted last month for the first time since November. Its index of manufacturing was the lowest since June 2009.
The yield on the 10-year Treasury note fell to 2.10 percent after the industry group reported the contraction. It was trading at 2.17 percent minutes before the survey was released at 10 a.m.
The drop in the note’s yield means investors shifted money into U.S. government bonds in anticipation of slightly weaker U.S. economic growth. Investors tend to buy bonds when they want relatively safe assets that are less likely to lose value if the economy slows.
The weakening outlook for manufacturing will be good for permabulls who want the Federal Reserve is keep up its $85 billion a month of bond purchases. Speculation that central bank was set to ease that stimulus—the so-called “tapering” of those purchases—has caused stock trading to become volatile in the last two weeks.
“This negates some of the fears that the Fed is going to do something in the next six to eight months,” said Peter Cardillo, chief market economist at Rockwell Global Capital. “It’s bad news which is good.”
The yield on the 10-year Treasury note, which is used to set interest rates on many kinds of loans including home mortgages, is about half a percentage point higher than it was at the start of the last month and is at its highest in more than two years.
As Treasury yields fell, rich dividend-paying stocks like power and phone companies and the makers of consumer staples reversed early losses. Those three sectors, which had been investor favorites in the first quarter, declined in May as bond yields rose.
In other trading, the Nasdaq composite fell 17.30 points, or 0.5 percent, to 3,438.
In commodities trading, oil climbed 95 cents, or 1 percent, to $92.92 a barrel. Gold rose $14.70, or 1 percent, to $1,407 an ounce. The dollar fell against the euro and against the Japanese yen. The U.S. currency dropped back below the 100 yen level.
–AP contributed to this report
Pretty much nil, save a trim in our ill-fated recent purchase of Calumet (CLMT) one of our favorite MLPs along with its relatively high dividend. Like our favorite REITs, most of the MLPs have also begun to tank, tossed in, apparently, with all other types of high-yielding stocks like utilities, telcos, and a few others, all of which are being discarded out of fear of the Fed’s real or fake “tapering.” So we’ve decided to get out of this stuff all together, vowing to creep back in to a limited degree when the smoke clears.
We’ve also cleared the deck of all our preferred stocks, which are going, alas, in the same direction. Our last holdings in all these areas are refiner-MLP CVR (CVRR), which we’re holding through today mainly to collect an immense special dividend at this point; and a tiny position in perennial favorite high-yielding utility First Energy (FE), which appears to be bottoming out. We’ll fade in to this position as we get greater visibility.
We’ve also picked up a tiny bit of gold ETF IAU. We’ve tried this about half a dozen times this spring in order to average down, only to find ourselves having to extricate ourselves before getting completely hosed. Some stuff simply hasn’t worked at all this spring, specifically, buying long gold ETFs and shorting bond ETFs. At some point, the worm will turn, but we’re sick of trying.
Meanwhile, we’re still ahead sometimes substantially, on our IPO purchases, but are required to hold them a bit longer by our discount broker. We do intend to dump every one of them, though, as we complete a 31-day holding period. We got rid of WestCorp (WSTC) last week, after having held our IPO shares for longer than that. This forbearance rewarded us with a 14 percent gain after a bad opening day, plus one dividend payment at an annual rate of 3.8 percent. Not bad for a relatively unknown telco.
We’re essentially going 100 percent cash for now, save for some small legacy bond holdings plus the exceptions mentioned above. It’s just too treacherous right now to try to make money. Plus, we have a couple of excursions planned this summer, and when you’re on travel or can’t get a good Internet connection, it’s just insane to hold volatile positions in this kind of unpredictable, institution-rigged market.
Stay safe, and remember that oftentimes, cash is indeed King.
Disclaimer: The author of this column maintains several active trading and investment portfolios and owns residential and investment real estate.
Positions mentioned above describe this author’s own investment decisions and should not be construed as either buy or sell recommendations. The current market is highly treacherous and all investors travel at their own risk, so caution should be exercised at all times.
Illustrations, charts, commentary, and analysis are only the author’s view of current or historical market activity and don’t constitute a recommendation to buy or sell any security or contract. Views, indications, and analysis aren’t necessarily predictive of any future market or government action. Rather they indicate the author’s opinion as to a range of possibilities that may occur going forward.
References to other reporters, analysts, pundits, or commentators are illustrative only and do not necessarily represent an endorsement of such individuals’ points of view. If specific investment vehicles are mentioned in any article under this column heading, the author will always fully disclose any active or contemplated investments in said vehicles.
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