Saturday, May 29, 1999
Market warms up with summer heat
Past performance points to growth
BY EILEEN GLANTON
The Associated Press
NEW YORK — This holiday weekend, visions of barbecues and beach chairs must surely be dancing in the heads of Wall Street traders.
For one thing, they could use a break. Before a solid gain Friday, the Dow Jones Industrial Average pitched violently all week amid fears of higher interest rates.
For another, this weekend is the unofficial start of summer, and that could mean the start of the highly unofficial summer market rally.
Market gurus are divided on whether stocks truly do gain during the lazy, hazy days of summer. But on the worst days of this past week, pundit after pundit looked hopefully ahead to “the summer rally.”
“The market has its moods,” said Robert Robbins, senior vice president and market strategist at Robinson-Humphrey Co. Inc. of Atlanta. “Friday is better than Monday, and summer is better than winter.”
Major market indexes almost always improve after May, a notoriously weak month for stocks. The Dow fell 2.1 percent this May, its steepest monthly decline of the year. It's a fallow time for corporate earnings; investors planning summer vacations cash in some gains; and market professionals quietly begin their string of three-day weekends.
For years, the Stock Trader's Almanac by veteran market watcher Yale Hirsch has attempted to gauge the supposed summer rally by charting the difference between the lowest close in May or June and the highest close of the summer, whether it in July, August or September.
There have been some bonanzas: a 22.9 percent jump in 1987; a gain of 18.4 percent in 1997, as the Dow raced past 8,000 for the first time. Both of those summer rallies, however, were obliterated by massive losses in the following Octobers.
But in the average year, stocks rally the most in winter. And while investors may choose to remember the gains, the past few summers have brought crushing losses as well.
In July 1997, the devaluation of Thailand's baht shattered the Asian currency market and rippled into the U.S. economy. And last summer, Russia's financial and political upheaval contributed to the Dow's stunning 512.62-point drop on Aug.31.
Nonetheless, analysts say investors tend to be a little more sanguine in summer.
And while foreign markets are more settled this year, analysts see clouds forming over the U.S. economy. Jan Holman, vice president at American Express Financial Advisors, believes in the summer rally but ticks off a number of trouble spots that could threaten stocks.
“Large-cap growth stock valuations are at historic highs; small stocks have been trading near bear-market levels for some time; we are seeing signs that inflation has picked up; the Fed is threatening to raise rates; and, to top it off, many Internet and technology favorites are off 40 to 50 percent,” she said.
It doesn't sound much like a day at the beach. But many professionals are sticking to their mantra: Americans should invest for the duration, and ignore short-term swings.
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