Sell in May?

Today is the last day of April, which makes it the perfect time to bring up the old investing adage "Sell in May, and then go away." The idea is that stock prices tend to go on a bit of a summer swoon, so investors would be wise to be out of the market during that time, and return to stocks in October or November.

It turns out there is some wisdom to the old saying. Since 1950, the S&P 500 has increased in value by an average of just 0.1 percent in May. It's flat in June, up an average of 0.9 percent in July, flat again in August, then down by an average of 0.5 percent in September. Prices then start to come back in October, rising by an average of 0.7 percent.

"Sell in May" is certainly an overstatement, though. Although stock prices are indeed historically unimpressive over the summer, they still rise by an average of 0.2 percent over those five summer months. Although those returns aren't exactly robust, it's still best to remain in the market.

Shelling Out for Prom

Do you have a son or daughter who is planning on attending their high school prom this spring? If so you better pull out your wallet, because the price tag for prom is spiraling ever higher. According to a survey taken by Visa, teenagers going to prom are expected spend an average of $1,139 this year.

According to David's Bridal, a leading seller of prom dresses, the average amount that a high school girl spend on a dress there is $170. Spending by boys fluctuates much more, but in the end, it's about the same: Men's Wearhouse says its tuxedo rentals run anywhere from $60 to $200.

Of course, some kids manage to attend prom for a lot less money than that. According to the Visa survey, 12 percent of high schoolers said they wouldn't be spending anything on prom.

First Look at GDP Growth

The Commerce Department released its first estimate of GDP growth for the first quarter of 2013 this morning, and we seem to have settled into a new normal, with the annual growth rate coming in at a somewhat modest 2.5 percent. The good news is that sequestration and the increase in the payroll tax don't seem to have had a huge effect on economic growth yet.

The largest driver of that growth was consumer spending, which rose a solid 3.2 percent in the quarter. That's the biggest increase we've seen since the last quarter of 2010. One area for concern was nonresidential fixed investment, which is mostly long-term business investments. Those increased by 2.1 percent in the quarter, which was positive but also a sharp slowdown from the 13.2 percent increase we had seen in the previous three quarters.

This is just the first estimate, and it will be revised as more figures come in. Look for a revision of these numbers to be issued by the Commerce Department on May 30.

What's Driving the Wealth Disparity?

The American economy has technically been in recovery for four years now, ever since it began growing again in 2009. While net worth overall has been growing since then, a new study from Pew Research shows that the bulk of the benefits have gone to the wealthy.

From 2009 to 2011, the average net worth of households in the wealthiest 7 percent rose by around 28 percent. Meanwhile, those households in the lower 93 percent saw their average net worth drop by an average of 4 percent.

There’s actually a very simple explanation for why this has happened. The stock market has been doing very well over the past four years, and that’s the source of much of the wealth for the nation’s wealthiest households. On the ther hand, more middle-class people have much of their wealth tied up in their home – and as long as housing prices were depressed, their net worth has been suffering along with it.

Another Flash Crash

In case you missed it, there was a brief crash in the S&P 500 yesterday afternoon following a report of a terrorist attack on the White House. There was no such attack, of course; it turned out that the Twitter feed for the Associated Press had been hacked. But the news was alarming enough to send the S&P down by more than a thousand points and temporarily erase $136 billion in value from the index.

The whole thing was over with very quickly, with the AP announcing the hack and the markets returning to normal within three minutes. The S&P finished the day up 1 percent overall. But the incident pointed up how precarious our markets are in these days of instant computerized trading.

There was a similar situation involving Google’s stock on Monday. Somehow automatic trading systems triggered a sell signal, and the stock lost 3 percent of its value – dropping by 21 points – in an instant, then popped right back up to its previous level. The whole episode was over in less than three quarters of a second. No one is quite sure what caused that crash.

Entrepreneurship in the Recovery

One interesting side effect of the economic recovery is the impact it has had on business creation. By one key measure, entrepreneurship has actually declined in the past couple of years: In 2012, 0.30 percent of all American adults started their own business, while that number was 0.34 percent in both 2009 and 2010.

The biggest reason for this is probably the dislocation that takes place during a recession. Fewer businesses are hiring, so people with nowhere else to turn are more likely to take a chance on starting their own business. In that sense, the number of people starting businesses can be taken as a contrarian indicator of economic health, or the lack thereof.

Whatever the reason, the rate of entrepreneurship is now back down to where it was prior to the recession. Today’s 0.30 percent figure is exactly the same as it was back in 2007. By that light, it can be said that entrepreneurship in the U.S. is now back to normal.

Dividends on the Rise

Are you a dividend investor? The low yields being paid out by bonds these days have focused increased attention on dividend-paying stocks, which allow many investors to get the income they used to get from bonds while also taking advantage of the capital appreciation that stocks provide.

Investors have traditionally looked to large, well-established companies for dividends. Among companies in the Standard & Poor's 500,  some 81 percent of them are now paying a dividend.

But the phenomenon is growing among smaller stocks as well. According to S&P Dow Jones Indices, some 46 percent of all companies that are too small to get into the S&P 500 are paying dividends as of the first quarter of 2013. That's up from 42 percent for the year-earlier quarter.

Tough Times for College Kids

If you're worried about the unemployment rate remaining stubbornly high, just be thankful you aren't a recent college grad. The outlook remains very difficult for young people embarking on a career, and though hiring has been increasing in recent years, the momentum has started to slow. That's the conclusion of a report issued yesterday by the National Association of Colleges and Employers.

There was a rise in the hiring of college graduates last year, but the increase - just 2.1 percent - was the smallest since the economy collapsed back in 2009. That year, hiring of new grads plunged by more than 20 percent. If the hiring rate increases at just 2 percent per year, it's going to take an awful long time to get us back to normal.

There is one bit of good news for recent grads. The salaries commanded by those fresh out of college are on the rise, with the average starting salary at $44,298 in 2013, up from $42,666 last year. The most lucrative degree is that earned by engineering students, who earned an average starting salary of $62,535.

New Jersey in the Beige Book

The latest edition of the Federal Reserve's Beige Book - its periodic, somewhat anecdotal look at the economy in various areas of the country - came out yesterday. The reports come from the 12 Fed regional offices, and New Jersey is split evenly between the Philadelphia and New York City offices, so there's usually not much specifically about our area. But this time there was, as well as a lot of interesting reporting on the real estate market in the Northeast.

The Fed said that not only were home prices rising in the state, but that inventories were shrinking, especially as a result of fewer distressed properties on the market. On the other hand, the commercial real estate market in New Jersey remains very sluggish; the Fed report used the word "moribund." Office vacancy rates in New Jersey are still at multi-year highs.

The New York City office - which covers northern New Jersey as well - reported that residential real estate had started looking much stronger there. By contrast, the Philadelphia office - which covers southern New Jersey - was the only regional office to report a slowdown in residential construction. We shall see which outlook prevails here at home.

Inflation Stays Muted

The Labor Department came out with the latest inflation figures yesterday, and they remain fairly low. For the month of March, the consumer price index rose just 1.5 percent, which is below the Federal Reserve's target rate of 2 percent. That's the fourth month in the last five that the annual inflation rate has been below 2 percent.

Labor's core inflation number, which strips out the more volatile food and energy prices, rose by 1.9 percent.  It was also the fourth month out of the last five that core inflation stayed below 2 percent.

All those figures are on an annualized basis. If you just look at the month-to-month changes, the core price index rose by 0.1 percent in March. Because the price of gas has been slipping lately, the overall inflation rate, including energy and food, actually fell by 0.2 percent.

The Gold Plunge

It's been a tough time to own gold lately. Last Friday, the price dropped 5 percent to conclude its worst-performing week since 2011. At that point, the metals had entered bear-market territory - defined as a 20 percent decrease after its peak - since it had fallen 23 percent from the peak price of $1930.20 per ounce, set in September 2011.

But the worst was yet to come. Yesterday marked the biggest single one-day price drop for gold in 30 years; the price fell by $144 an ounce on Monday, or 9.6 percent of its value. It's now at $1,357 an ounce, down 28 percent from the peak.

Since 1975 gold has entered that bear market territory on 13 different occasions, according to data compiled by the Bespoke Investment Group. The average price drop on each of those occasions has been more than 31 percent. So it may still have further to fall.

Optimism on Economic Growth?

Are we in for a surprising amount of economic growth for the first quarter of 2013? At the outset of the quarter, many economists forecast very slow GDP growth, as we were in the middle of the Fiscal Cliff battle and the recovery seemed to be slowing.

But lately economists have been revising those estimates upward. Morgan Stanley has changed its estimate of first quarter GDP from the 0.8 percent they predicted in December to 3 percent now. JP Morgan has raised its earlier forecast of 1 percent growth up to 3.3 percent. The consensus, according to the economists surveyed by Bloomberg, is for 3 percent growth, up from a 1.6 percent consensus in December.

The Commerce Department releases its first estimate of first quarter GDP next Friday, April 26. At that point, we will have a better sense of whether all this optimism is justified.

Foreclosing in New Jersey

The bad news is that home foreclosures continue to rise here in New Jersey, despite the widespread belief that the housing crisis had been put behind us. The good news is that our state has a much better record in this area than some of our neighbors.

Foreclosures in New Jersey rose at a pace of 42 percent in March, based on year-over-year statistics. While the national average saw foreclosures dropping 23 percent, they actually rose 200 percent in New York and 193 percent in Maryland. One big factor: After Hurricane Sandy, banks went into a period of loan forebearance, but they're catching up on those delinquent mortgages now.

There is good news, though. Property values are up by nearly 10 percent throughout part of northern New Jersey, and up 4 percent for the state as a whole, as the housing market continues to recover.

Generation Gaps

Despite some obvious problems in recent years, the financial status of the average American remains on an upward trajectory. According to a study that came out last month from the Urban Institute, average household wealth doubled between 1983 and 2010. But if you delve into the growth by different age groups,  the numbers are a bit more troubling.

Households headed by older folks have done very well: Those families headed by people 74 or older had 149 percent more assets in 2010 than similarly aged households had in 1983. Those aged 56 to 64 had 120 percent more. Each group aged 47 or older had at least 75 percent more wealth in 2010 than their counterparts had in 1983.

But for younger generations, the story is very different. Households headed by people aged 38 to 46 have just 26 percent more wealth than such households had in 1983. And those aged 29 to 37 have actually lost ground: Those families have 21 percent less wealth than similar families had a generation ago.

All About the Benjamins

According to a new study from the Federal Reserve, the amount of cash in circulation continues to grow in our country, up 42 percent from just five years ago. Most of this is in the form of $100 bills. In the past five years, the amount of one-dollar bills in circulation has gone from 9.3 billion to 10.3 billion, a rise of 11 percent, and the value of $20 bills in circulation has gone from $121.8 billion to $148.9 billion, a rise of 22 percent. But the value of $100 bills has gone from $569.3 billion to $863.1 billion - an increase of more than 50 percent.

This might be an indication of an increase in criminal activity. Cash-only businesses that trade heavily in hundred-dollar bills tend to be illicit ones. But a possibly related factor is that more and more American cash is being held outside the United States. There was $272 billion in U.S. dollars being held abroad in 2007; in 2012, that number has risen to $454.2 billion.

Put those two trends together, and the upshot is that most of the $100 bills are actually outside the United States. Nearly two thirds of all hundreds, or 65 percent, are no longer on American soil.

Earnings Season Gets Underway

Earnings season kicked off yesterday, with Alcoa as the traditional first reporter. Alcoa beat its earnings estimates, with profits of 11 cents per share as opposed to the Wall Street consensus of 8 cents per share. Nevertheless, its income fell dramatically, from $242 million in the first quarter of 2012 to $149 million this quarter.

We may be in for a lot of that sort of thing. Most of the prognosticators seem to think this is going to be a fairly weak season for earnings growth. S&P Capital IQ foresees them as growing at just 0.6 percent over the first quarter of 2012. And that's one of the more optimistic forecasts: FactSet's projection is that earnings will shrink by 0.6 percent.

The true tale may be told later in the week. Both JP Morgan Chase and Wells Fargo report their earnings on Friday, and those two big banks are considered much more a bellwether than Alcoa is.

First Quarter Fund Sectors

We're starting to get more figures on the market's performance for the first quarter of 2013. One interesting breakdown is Morningstar's look at the returns of various sectors in the mutual fund business. There's been only one big loser: precious metals, which have been hurt by the recent drops in value for gold and silver.

Here's a look at how the major fund sectors performed in the first quarter:

Health, up 15.8 percent
Utilities, up 11.1 percent
Energy, up 11.1 percent
Financial, up 10.0 percent
Real estate, up 6.9 percent
Technology, up 6.8 percent
Communication, up 5.9 percent
Natural resources, up 3.8 percent
Precious metals, down 17.2 percent

Mixed Signals on Unemployment

The headline number from this morning's unemployment report was a disappointment: The economy created only 88,000 jobs in March, according to the Bureau of Labor Statistics. Over the past three months, we had added an average of 168,000 jobs per month, so this morning's figure is less than half of that. In February, we added 268,000 jobs.

It was the worst month for new hiring in a year and a half. Many expected the federal sequester to take a big bite, but an even larger factor was that the retail sector shedded 24,000 jobs, after having added an average of 36,000 jobs per month over the previous six months.

Still, the unemployment rate ticked down, from 7.7 percent to 7.6 percent. That's primarily the result of two factors. First, the number of jobs added in both January and February were revised upward, meaning we added a total of 69,000 jobs from those months. Secondly, an unexpectedly large number of people left the workforce in March, nearly 500,000 people. That helps shrink the percentage of people considered unemployed.

Bad Times in Europe

The recovery here in the United States hasn't exactly been gangbusters, but on the bright side, it could be a lot worse. We could be in Europe. The unemployment rate throughout the European Union is up to 12 percent; a year ago, it was at 10.9 percent. The EU nation with the worst unemployment isn't Greece; it's Spain, at 26.3 percent.

The GDP for the Eurozone as a whole contracted by 0.6 percent in the fourth quarter of 2012, which was its worst figure since dropping by 2.5 percent in the first quarter of 2009. The European economy has now contracted in five straight quarters, which puts it in full-blown recession.

Even the strongest economies have begun to shrink - Germany's GDP fell by 0.6 percent in the fourth quarter, and France's by 0.3 percent. And these figures predate the crisis in Cyprus. If that island nation ends up exiting the Euro, there's no telling what that could mean for the larger economy.

Different Outlooks on the Economy

A new Gallup poll shows that Americans' economic confidence slipped in March, despite the record-setting stock market. The overall figure fell from -13 in February, which tied a five-year high for this measure, to -16 in March. One reason the figure is still so strongly negative is because 54 percent of Americans say the economy is getting worse, as opposed to just 41 percent who say it's getting better.

There are some interesting splits deeper down in the data. The better off you are, the more you like this economy: Upper-income Americans rated their economic confidence at -5, or almost back to the normal zero point. Middle- and lower-income Americans, by contrast, put their economic confidence much lower, at -18.

Meanwhile, Republicans' economic confidence moved up four points in March, while Democrats' confidence dropped by nine points. Still, Democrats feel a lot better about the economy than Republicans do: Their confidence rating sits at +15, while Republicans sits down at -47.

Is the S&P Too Defensive?

The good news is that the S&P 500 finished the first quarter up by 10 percent, and closed at at new record high on Thursday. Is there any bad news? Some financial experts are concerned that the sectors that have been leading the way this year are classic defensive areas, the kinds of investments people seek out when they're trying to be careful.

The top-performing sector for the S&P 500 so far this year has been health care, up 15.8 percent, followed by consumer staples, up 14.6 percent, and utilities, up 13.0 percent. These are the kinds of defensive sectors that investors turn to to preserve their gains, not the more aggressive sectors, like energy and tech, that might lead to more economic growth.

The worst-performing sectors in the S&P, by the way, are still doing well this year. The absolute worst is materials, which is still up by 4.8 percent. It's followed by the telecoms, which are up 9.5 percent.

The Rising Cost of Everything

Inflation has been running at about 2 to 3 percent a year lately, according to the official government statistics, but it sometimes seems higher, because some high-profile items - gasoline, say, or college tuition - seem to be increasing much more than that. A columnist for Marketwatch named Rex Nutting has gone back and calculated just how much certain consumer items have risen in price in the 30 years since 1983. Here's what he found:

• Gallon of milk: up 1.5 percent on an annual basis
• Pound of ground chuck: up 2.3 percent
• Dozen eggs: up 2.8 percent
• Big Mac: up 3.6 percent
• Gallon of gas: up 3.8 percent
• Median home price: up 3.8 percent
• Ford Mustang: up 4.0 percent
• College tuition: up 7.3 percent
• Health insurance premium: up 7.4 percent