Everyday market watchers can be forgetful and less than optimistic

By Dian Vujovich

I talked with more than one person over the holiday weekend whining in their beer about how horrible the performance of the stock market has been. “What are you talking about?” I asked them and then as gently as a sledgehammer can be reminded them that the market had gone up about 80 percent since last March, then fell about 10 percent last month. That leaves an upward movement of around 70 percent to my way of thinking.

But that’s what happens to the daily, hourly, and minute-by-minute market watchers They get to thinking short-term is the only term and forget about how far stock prices have come. Or where they might go.

While there’s no way of sugarcoating the ugliness of May 2010’s performance, it hasn’t resulted in the end of the equity world. So to help everyone refocus a bit, here is what two pros have written about last month’s performance—-other than it was the worst May in 48 years—and their investment outlooks.

•From Bob Doll, Vice Chairman and Chief Equity Strategist in BlackRock’s Weekly Investment Commentary for the week of June 1, 2010.

“As several observers have noted, the past month was the worst May for US stocks since 1962, and there are some interesting comparisons between that time and the present. In the 1962 bear market, the S&P 500 fell nearly 30%, but US GDP continued to expand at a brisk pace. At the time, market sentiment was dragged down by the failed Bay of Pigs invasion and the Cuban Missile Crisis, but fundamental conditions remained strong. To some extent, we believe the current environment is similar, given that stock prices are being driven much more by sentiment than by fundamentals. In previous business cycles, when credit market pressures surfaced at a time when the yield curve was steep, the economy experienced brief slowdowns, but not recessions. If that is also the case today, then what we are looking at should be a temporary slowdown in growth, but not a double-dip recession. Our best guess at present is that nervous investors and slowly receding uncertainty levels will keep market volatility high over the coming month. However, should the labor market recovery continue, as we expect it will, the backdrop of strengthening corporate profits and a recovering economy should push equity prices higher, although it will take some patience to get there.

And Louis Navellier had this to write in the Navellier Weekly Marketmail, Tuesday dated June 1, 2010:

“The start of June marks the official beginning of summer driving season, the Gulf hurricane season, and perhaps a new beginning for the stock market: Last month was the worst month of May since 1940, when the Dow fell 22% at the outbreak of Hitler’s invasion of Western Europe. Last May wasn’t that bad, but major U.S. stock indexes fell 8% in May. Since the market had risen by over 70% in the previous 14 months, we were due for a normal (10%) correction.

“The overall sovereign debt crisis is dying down for a variety of reasons. First, Portugal successfully sold $1.27 billion in new government debt, which helped to reassure markets that the Greek crisis was not spreading. Second, China said it is NOT reducing its holdings of euro-zone bonds. That helped boost confidence in all euro-denominated investments. Finally, the Spanish Parliament approved a controversial $18 billion package of austerity measures…

“The euro hit a low of $1.2142 late Wednesday….Meanwhile, gold prices soared back over $1200 on Wednesday. Gold usually rises on a weak dollar, but now gold is now rising in terms of both the euro and U.S. dollar. Bloomberg reported last week that speculators are now buying gold faster than existing gold mines can produce new gold bullion.……

“With a near-10% jobless rate, we are obviously in an excruciatingly slow job-market recovery. ….

“In short, all of this week’s worst worries are about things that might happen – from hurricanes to hot wars; from debt implosions to bank failures – but these scares are fully known. If something less than total disaster happens in most of these areas, it stands to reason that the market should recover strongly.”