James Paulsen: Investment Outlook (May 2012)

Is it Déjà Vu all Over Again? April 30, 2012 by James Paulsen, Chief Invest­ment Strate­gist, Wells Cap­i­tal Man­age­ment (Wells Fargo) After nearly six months of per­sis­tently better-than-expected eco­nomic reports and a reg­u­larly ris­ing stock mar­ket, met­rics on the econ­omy have turned a bit more mixed lately while stock mar­ket prices have strug­gled in recent weeks. This has caused many to won­der whether the econ­omy and the stock mar­ket are headed again toward another “spring swoon” like those expe­ri­enced dur­ing 2010 and 2011. Spook­ily, con­di­tions do seem remark­ably sim­i­lar today to those which pre­ceded the last two spring thaws. In 2010, the stock mar­ket peaked on April 23 and in 2011 it peaked on April 29. Well, it’s April again and stocks are strug­gling? More­over, in each of the last two years, just like this year, the spring stalls were pre­ceded by improved eco­nomic reports and by a surge which car­ried stock prices to new recov­ery highs. Finally, ris­ing gas prices have again played a dom­i­nant role in recent months as they did lead­ing up to both of the last two spring swoons. So, is every­one best advised to sim­ply “Sell in May and Go Away”—something which worked well in each of the last two years? Although sim­i­lar­i­ties to past swoons are trou­bling and while the recov­ery will inevitably “ebb and flow,” there are sev­eral crit­i­cal dif­fer­ences evi­dent this year which should help keep the econ­omy and the stock mar­ket out of “swoon’s way” dur­ing the bal­ance of 2012. Eco­nomic Poli­cies are More Accommodative Eco­nomic poli­cies are notably more accom­moda­tive today com­pared to either 2010 or 2011. In 2010, the pace of the M2 money sup­ply had slowed to a restric­tive 1 per­cent annual pace, and in early 2011 it was only ris­ing at a very mod­est 4 to 5 per­cent pace. By con­trast, today, the annual growth in the M2 money sup­ply has per­sisted about a robust 10 per­cent clip since last fall! (more)