2 Reasons Stocks Are Headed Higher

There's a saying in the market that investors should "sell in May and go away." The implication is that stocks are bound to go down at the beginning of the summer and it's best to get out of the way. If recent history is any indication, there's something to this cliche. In 2010, the Dow Jones Industrial Average (DJINDICES: ^DJI  ) fell by 8.9% over that period. In 2011, it dropped by 4%. And last year it fell again by 8.3%.

Is something similar in store this year?

The obvious answer is: Unless you can predict the future -- which is doubtful -- we have no idea. In fact, it's even worse than that. In his biweekly column, my colleague Morgan Housel demonstrated that most investors don't even know what happened in the not-too-distant past. Just recently, for example, "31% of investors said the market fell last year. Yet it was up 16%." So if you think you know what's going to happen in the future, do yourself a favor and stick to passive index-investing -- which is honestly the best course of action for the majority of investors anyway.

That being said, there are at least two reasons to be optimistic about the likelihood that stocks are headed higher. First, consumer spending continued to advance last month. According to the Department of Commerce (link opens PDF), purchases increased by 0.2% in the month of March. While this was slower than the 0.7% climb in February, it nevertheless exceeded the consensus estimate among economists.

And second, the National Association of Realtors said today that its index of pending home sales ticked up by 1.5% in March. "Contract activity has been in a narrow range in recent months, not from a pause in demand but because of limited supply," said NAR chief economist Lawrence Yun. "Little movement is expected in near-term sales closings, but they should edge up modestly as the year progresses." Click here to see what CEOs at the nation's largest homebuilders are saying about the state of the market.

Stocks are sharply higher today on the heels of this news. Technology stocks are leading the Dow higher, with Hewlett-Packard (NYSE: HPQ  ) , IBM (NYSE: IBM  ) , and Microsoft (NASDAQ: MSFT  ) in the blue-chip index's top three spots, all gaining more than 2.5%. While this looks like a trend, each stock is likely up for its own reason. As my colleague Anders Bylund discussed earlier today, HP is rallying on rumors that Carl Ichan may be amassing a stake in the beleaguered tech titan, Big Blue is up as the company rolls out new offerings at its IBM Impact conference in Vegas, and Microsoft has recently added attractive features in its cloud-computing and Xbox divisions.

On the other hand, shares of Boeing (NYSE: BA  ) are going nowhere. In case you haven't followed the aerospace company's travails over the past few months, the performance of its shares today seems a bit ironic. Boeing has been struggling to get its flagship 787 Dreamliners back in the air after two separate aircraft experienced battery fires, and today marked the first passenger flight since the problem was identified and repaired.

Boeing is a major player in a multitrillion-dollar market in which the opportunities are massive. However, emerging competitors and the company's execution problems have investors wondering whether Boeing will live up to its shareholder responsibilities. In our premium research report on the company, two of The Motley Fool's best industrial-sector minds have collaborated to provide investors with the must-know info on Boeing. They'll be updating the report as key news hits, so don't miss out -- simply click here now to claim your copy today.


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  • Report this Comment On April 29, 2013, at 4:22 PM, DrGoldin wrote:

    "Morgan Housel demonstrated that most investors don't even know what happened in the not-too-distant past. Just recently, for example, '31% of investors said the market fell last year. Yet it was up 16%.'"

    But but ... "31% of investors" is not "most investors."

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