Spring Slide in Full Swing
NEW YORK (TheStreet) -- It has been 410 years since the first initial public offering (IPO). The Dutch East India Company helped people add spice to their daily lives, connect to those in faraway places, and became the richest company the world had ever seen. High hopes for similar success surrounded the Facebook (FB) IPO on Friday. However, the long-awaited IPO was unable to spur enthusiasm among stock market investors. Stocks posted the worst week in six months as the S&P 500 fell 4.3%, making three straight weeks of declines culminating in an 8.7% decline from this year's peak in April.
In each of the past two years, the stock market began a slide in the spring, a phenomenon often referred to by the old adage "sell in May and go away," which lasted well into the summer months. In both 2010 and 2011, an early run-up in the stock market, similar to this year, pushed stocks up about 10% for the year by mid-April. On April 23, 2010 and April 29, 2011, the S&P 500 made peaks that were followed by 16% to 19% losses that were not recouped for more than five months.
On March 26, we published the 10 indicators that warned of another Spring Slide this year but noted that this year's decline may not be as steep as in the prior years. Now that the Spring Slide is in full swing, we have to watch out for the big event with the potential to make it as severe as the past two years.
A combination of factors contributed to the reversal in direction for the stock market, including an extended and exhausted rally, a slowdown in the economy, and weakening earnings outlooks. But what added fuel to the decline in 2010 was the negative environment that included the end of the Fed's QE1 stimulus program, the uncertainty around the impact of the Dodd-Frank legislation, the passage of the Affordable Care Act, the Eurozone debt problems and bailouts, central bank rate hikes, and the end of the homebuyer tax credit.
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