MAYDAY

Thankfully May has come and gone but it has left a trail of blood on Wall Street.  For the month, the S&P finished down over 6% with the other major indices posting even larger losses.  Volatility has picked up significantly with wild daily and intraday swings.  Catastrophic declines often happen when the markets have declined enough to get all investors to consider selling.  We are at that point and all it would take is a trigger event to push us over the edge.   We are certainly not calling for a catastrophic decline but there are an uncomfortable number of such potential trigger events. 

Today's economic news disappointed on all fronts and the markets sold off before finding a footing and attempting to break even for the day.  Tomorrow brings the much watched jobs report (every indication points to it being weaker than expected) so the bulls will likely have to hold their ground again tomorrow to avoid another run at the lows of a couple of weeks ago.  The low of March 18th (1295 on the S&P) is a line in the sand that the bulls will have to defend to avoid another air pocket where we could see another quick 3-4% decline.  Of course, the Fed and the ECB remain in the background where it is anybody's guess when (if) they will step in with more market liquidity.  When (if) that happens, we will see a powerful rally back up to the highs of this year.  In the meantime, we are in a treacherous environment and the risks of being in the market far exceed the benefits.  For the month, our portfolios have declined less than 1% as we have maintained a defensive posture for the last few weeks.  We will continue that stance until we get more clarity.