Are Bears Roaring the May Market Mantra?

Indexes and index ETFs continued their sell off today as Europe, oil, and US economic reports continued to burn.

Major markets and index ETFs continued the “sell in May and go away” phenomenon as all major indexes and index ETFs finished in the red to end a negative week.  The S&P 500 finished -1.61% lower as the SPDR S&P 500 ETF (NYSEARCA:SPY) lowered -1.62%.  The Dow shed off -1.27% while the SPDR Dow Jones Industrial Average ETF (NYSEARCA:DIA) lost -1.38%.  The NASDAQ and Russell 2000 were perhaps hit the hardest, as the NASDAQ 100 lost 2.25% and the Russell 2000 lost 1.83%.  The PowerShares QQQ Trust Series 1 ETF (NASDAQ:QQQ) and the iShares Russell 2000 Index ETF (NYSEARCA:IWM) lost -2.59% and -2.07% respectively.

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Today’s continued sell off to round out a negative week on Wall Street centered around the highly disappointing (and anticipated) April non-farms payroll report released today.  The report indicated that non-farm payroll new jobs dropped from 154,000 in March to 115,000 in April, a severe and significant draw down in number of non-farm jobs added to the US economy for that month.  This report was released on the heals of further pain in Europe, as the Markit Economics Eurozone PMI report dropped as well, and Spanish bond yields continued to rise.

The other news maker today was oil’s near 4% drop.  The United States Oil Fund LP ETF (NYSEARCA:USO) participated in the great plunge by dropping -3.94%; the plunge was likely a correction after months of high oil speculation on top of renewed fears that US economic growth has stalled out yet again.

And, bringing up the word stall: has the US economy indeed stalled out again?  The future outlook does not look good as this week’s slew of economic reports have conveyed disappointing results.  With French and Greek elections approaching this weekend, and as we head deeper into “sell in May territory,” Monday morning might come as a bit of a shock.

Bottom Line: So, is this overall sell off due to a market correction, the “sell in May” phenomenon, an economic slowdown and possible stall out, or a reaction to affairs abroad?  My likely guess is a mix of all the above, and whatever the causes may be, the markets and my sentiment do not appear positive for the short term.

John Nyaradi is the author of The ETF Investing Premium Newsletter.