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Another Down Week for the Dow?

Portfolios took another hit on Monday, prompting some investors to ask their advisers if the recent downturn is reason enough to start selling.

Including today, stocks have fallen 8 days out of the last 9 – with last week the Dow posting its worst five-day stretch in five months. And some analysts say they’re expecting more of the same this week and beyond. Historically, May has been a poor-performing month: The S&P 500 has returned an average 1.2% during the month each year going back to 1945, the poorest for all rolling six month stretches, according to S&P Capital IQ. Since 1950, the market’s strongest months have been December, April, November and March.

News coming out this week may not help, say analysts. Greece is on the brink of being forced out of the euro zone. The country’s president, Karolos Papoulias, is expected to chair a meeting late Monday with the country’s political leaders in an 11th-hour effort to form a coalition government after recent elections there. The failure to form a government would prevent Greece from collecting the international aid it needs to meet its debt obligations.

In addition, investors have been reacting to longer-term uncertainty over U.S. tax rates and health-care costs after the U.S. Presidential election in November, experts say.

On Monday, the Dow lost 125.25 points, or 0.98%, to 12698.35.

Financial advisers say the latest worries among investors makes sense. “The past 5 years of volatility has shattered confidence in the markets,” says Charles Sizemore, a financial adviser in Dallas, Texas, “and with the steady stream of gloomy news coming out of Europe, sentiment has only gotten worse.” Trading volume has been abnormally low for last year as many investors move to the “perceived safety of bonds from the perceived riskiness of stocks,” he says.

Still, many advisers are trying to prevent clients from selling, pointing out that broader economic trends favor stocks. For example, consumer confidence in May rose to the highest level in 4 years, according to Thomson Reuters/University of Michigan preliminary index. Meanwhile, labor’s share of income in the U.S. — in other words, corporate profits — is at an historic low, which Glenn Guard, director of investment managementat Alexandria, Va.-based Campbell Wealth Management, says suggests that corporations have strong balance sheets and have the ability to hire. “We’re going to see a de-coupling of the economies in the U.S. and Europe,” with the U.S. markets outperforming in the near future.

In fact, some see the latest market drop as buying opportunity. Guard suggests “high quality, global dividend-paying stocks” such as Procter & Gamble (PG). “They’re selling Tide detergent to the Chinese and Crest toothpaste to the Brazilians,” he says. Sizemore also favors dividend-payers currently trading at low prices relative to earnings, including Microsoft (MSFT), Intel (INTC) and Johnson & Johnson (JNJ).

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    • The time to sell was in March. Selling now just seals your losses over the past two months.

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