May 31 - Summary: Investors lost nerve in the last hour of trade fearing the market has reached unhealthy levels; Stocks in longest winning streak since 2009; inflation below Fed target but consumer sentiment and factories bouncing back. Conway G. Gittens reports.
Stocks rally for the month of May, marking the seventh up month in a row - and this January to May is now the best on record since 1997, and the longest winning streak since 2009. But volatile, choppy, roller coaster: any of those words would fit in as a description of Friday's trading session. The up-down action ended with a thud as the broader market suffered its biggest point drop since April 15th. For the week - back-to-back losses for the Dow for the first time since February and the Nasdaq shed 0.1 percent. One trader put the late sell-off this way: complacency is now being rattled as traders fear a market downturn could be coming given the market's stellar run. Part of the nervousness: huge swings in the Japanese market and concerns about monetary policy in the U.S. The trader added: while the Fed has made clear the inflation and unemployment targets it is watching before it changes its policy stance, that doesn't mean the Fed will not start to scale back some of the extra stimulus put in place. John Toohey, VP, USAA Investments disagrees and thinks the Fed is on hold for the rest of this year. SOUNDBITE: JOHN TOOHEY, VP, USAA INVESTMENTS (ENGLISH) SAYING: "If we see a pick-up in economic growth and we some pick-up in inflation - we think from sort of the dual mandate perspective - labor market improvement, inflation; that the Fed could taper, but remember Bernanke built his whole reputation on arguing that both in the Great Depression and Japan in the 1990s they cut back on the easy monetary policies too soon so if somebody takes the foot of the Fed accelerator - we don't think it will be Bernanke." Economic data added to the confusion: Consumers pulled back on spending in April, the first drop in personal consumption in almost a year. At the same time, a key consumer inflation gauge slowed and is comfortably below the Federal Reserve's target. But on the other hand - consumer sentiment rose this month to its highest since July 2007...and manufacturing activity in the Midwest bounced-backed sharply to growth in May after shrinking the month before. In Europe: stocks fell to their worst close in a month as investors wonder how much further this rally can go.