Investors Must Stay Alert and Focused Amid Market Rallies
Global stocks just capped their longest winning streak since the start of the financial crisis. The S&P 500 rose 5.3% in May, for a three month gain of 25%, its biggest 90 day gain since 1938. Over the past three months, the Dow Jones Industrial Average was up over 20%, and has gained almost 30% from its March 9th bear market low.
Commodities have also enjoyed a robust recovery in May. The Commodity Research Bureau Index ended the month up 14%, the biggest monthly jump since July 1974. Crude oil gained 29.7% for the month and settled at $66.31 a barrel, the highest level since November. Gold futures neared the $1,000 mark, closing at just over $980 an ounce, a 9.9% monthly gain.
Investors clearly believe that the worst of the financial crisis is behind us. Economic data released on Friday supported that idea. The Commerce Department said that the U.S. economy didn't contract as much as first reported in the first quarter. Gross domestic product fell 5.7% versus the originally estimated 6.1% drop, which means that the recession may have hit bottom in the fourth quarter of last year, when GDP tumbled 6.3%.
Over the weekend I was reminded that even when things are going smoothly, you must remain alert and focused. While riding my bicycle on a beautiful spring day, I was feeling strong and confident. Then suddenly I was tumbling over the top of my handlebars and crashing to the ground.
The point being that just because markets are rising and the economy is doing "less bad" you should not for one minute let down your guard. It looks like we have averted a major financial catastrophe, but that doesn't mean that stocks will never fall again. Stick to your discipline and remember that an accident can lurk around the next turn. I now have my separated shoulder as a powerful and painful reminder to remain on guard. What are you using?
Image by Flickr user ewedistrict, CC 2.0
