The Dog Days of Summer

By Trust Company Staff

June 23rd, 2007

After a yawn-filled first quarter, stocks took a page right out of the late 1990s and soared to record highs on many indices. At one stretch, one had to go back to 1927 to find a percentage comparison of positive trading days in a one-month period.

As we have mentioned before, it had also been some time since we have had the magic decline of 10% that qualifies to be an official "correction." The fundamentals behind the rally are positive. Quarterly earnings were again above estimate, the Fed was on hold for the time being, while domestic and global economies were expanding.

While we expect an overall positive year for stocks, no stock market moves in a straight line up or down. Adjustments to perceived risks are always taking place. Because of the tremendous run we are experiencing in April and May, one could expect at best a pause or at worst a correction in stock prices. There is an old adage on Wall Street, "Sell in May and go away." While we certainly haven't seen a pause or decline thus far in May, it could take place over the slower summer months when a lack of catalysts put many buyers on the sidelines.

If ,000 were invested on May 1, 1950 and sold on October 31, 1950, and this process was repeated every year through 2005, the original ,000 would have actually declined to .729. If the same ,000 was invested on November 1 and sold each April 30, the value would be an astonishing 4,327.