May Meltdown
Thursday, June 1st, 2006
By Michael Lombardi, MBA for Profit Confidential
Yesterday, the month of May went into the history books… a month most investors and stock traders will be glad to say goodbye to. It looks like May was the worst month for stocks in about two years.
The Dow was down about 2% in May, the S&P 500 dropped 3% and the NASDAQ was down about 6%. The NASDAQ “spook” I wrote about two weeks ago has become a reality.
Why is the stock market getting hit so hard? We don’t have to look much further than the U.S. housing market to figure that one out. The Dow Jones U.S. Home Construction Index was down a whopping 3% in the past couple of days–this index of the largest U.S. new-home builders is now down 20% over the past 52 weeks.
I feel sorry for the 40% of Americans who now have second homes… I feel the pain of those consumers who were lured into buying homes with very little down payments… all those Americans that bought using adjustable rate mortgages… the stock market takes no prisoners. Just peoples’ money!
The stock market is taking it in the chin because the party in the housing market is over. The remaining backbone of the U.S. economy, construction and housing, is no longer solid. It’s very weak. As a leading indicator, the stock market sniffs the pain over-extended consumers will soon experience and the effects it will take on U.S. consumer spending.
All across America different real estate associations, boards and real estate brokerages are reporting a quickly softening real estate market. Doesn’t look like a soft landing to me! And that means the May meltdown in stocks might just spill over into the summer. Hopefully, my readers heeded my advice over the past several months and reduced their exposure to most stocks except for gold, oil, and special situations.
NEWSFLASH–Formerly hot vacation home market Ft. Lauderdale, Florida has an unsold inventory of homes equal to 11 months supply, up from two months supply only a year ago! Inventory of condos on the market in Ft. Lauderdale has now hit 12 month’s supply. How much longer before prices start to drop? Soon, I would expect.
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Tags: dow jones, gold, stock market, U.S. economy, U.S. housing market
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Michael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Today, Michael only employs the top market analysts and editors. Some of our recommendations have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Along the way to building Lombardi Publishing Corporation, now with over one million customers in 141 countries, Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland.Follow Michael and the latest from Profit Confidential on Twitter
