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Consumer Cred; Bond Face-Off; Sayonara, 'Sell In May'

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Feeling Flush But Facing Headwinds

Notes:

Consumer sentiment is at its highest point since July 2007, lifted by a rising stock market and property values, and offsetting an unexpected drop in consumer spending in April, according to data released on Friday. Oh, in case you hadn't heard, the markets ended May up for yet another month.

The Thomson Reuters/University of Michigan consumer sentiment index rose to 84.5 in May from 76.4 a month ago. It's good news, but slightly tempered by the fact that consumer spending shrunk 0.2 percent as payrolls lag and the effects of January's tax hike take hold.

Nuveen Asset Management's Robert Doll said that consumer spending was encouraging but warned that it could not be sustained, adding that while he doesn't see a lot of downside for stocks right now, he's not expecting a red-hot summer either.

Friday was the worst day for the markets in recent memory, even closing the books another up month, with all of the major indexes closing down by more than 1 percent and seeing heavy selling in the afternoon. Data on nonfarm payrolls, which come out next Friday, could amp up the volatility and make or break this rally.

Quotes:

"There's no question that consumers spent most of the first part of this year spending more money than most of us thought in the wake of the tax increase and the rise in the price of gasoline, and ... they dipped into their credit card balances and reduced their savings rate. That can't continue. So my view is that the consumer will be there but can't lead the way. We need some other parts of the economy—notably, capital spending—to do a bit better if we'll sustain acceptable growth."
— Robert Doll

"The market has put in a good solid top up there around 1,670 for the S&P, and I think you look for every opportunity to now sell into this market because now I think we are in ... the early stages of a correction."
—Todd Horwitz, founder of Averagejoeoptions.com

Bond Face-Off

Notes:

Goldman Sachs and UBS have differing opinions over whether the long-awaited selloff in bonds is here.

The selloff is for real, according to a research note from Goldman Sachs' fixed-income analysts, which pointed to a recent uptick in Treasury yields. UBS countered that the market has overreacted, and UBS's take has some support.

Goldman's year-end 2013 forecast for 10-year Treasurys remains 2.5 percent, above the forwards, and the bank's analysts said it would be looking for opportunities to trade the market from the short side. UBS countered that the market seems to be overreacting to the slim possibility that the Fed could begin tapering sooner than expected.

Quotes:

"We were surprised by the Treasury selloff last week in response to the various Fed speakers. Chairman Bernanke's testimony to the Joint Economic Committee seems particularly even-handed. Sure, the Fed could taper in the next couple of months, but it still seems very unlikely."
—UBS analysts, in report

"A slow steady increase in rates would mean that the world continues to heal, the economy continues to improve."
—Robert Doll

Sell in May And … Say Sayonara?

Notes:

"Sell in May and go away," didn't really apply this year--except for the last day of the month, Friday, on which the U.S. markets saw heavy selling--but it might be an apt expression to explain the Japanese market situation.

Japan and the Nikkei were on the minds of many Friday as market watchers tried to digest what two Japanese stock swoons in a week and continued bond volatility mean for U.S. markets and the axiom "sell in May and go away."

Overall, the sentiment is that the Nikkei is correcting a bit from a huge run-up (32.5 percent this year) and that U.S. markets are reacting to rising interest rates, but stocks—thus far—seem to be relatively immune. There's even thought that the Nikkei will find support at about 12,500 and will eventually surprise on the upside as bond volatility has investors shift to stocks.

Quotes:

"You have to take sell in May and translate it to Japanese this year. And it's not just the month of May. It's between now and Halloween. We could have a summer selloff that would still live up to the thesis. But it's been quite pleasant, and now we're beginning to get some second thoughts."
—Art Cashin, UBS Financial Services

"Yes, we'll see a [U.S. market] correction, and I think that's a correction you'll have to buy."
—Yra Harris, Praxis Trading

Stealth Housing Plays?

Notes:

Housing numbers are encouraging. Prices are on the rise and consumer confidence is up (see above). Does that mean you can bank on big gains from vague housing plays, such as home appliance makers (Jarden, up about 37 percent YTD) and electronics retailers (Best Buy, up about 137 percent YTD)? Probably not.

Quotes:

"All of a sudden we're talking about [Best Buy] as a stealth housing play when they have 6 percent of their sales from appliances that could go to 10 percent because people have so bought into the idea that the housing recovery is the world's one reliable, bankable, appreciated growth story. I think we're going a little too far."
—Mike Santoli of Yahoo Finance!

The Rich Get Richer

Notes:

The richest 1 percent now control 39 percent of the world's wealth, and their share is likely to grow in the coming years, CNBC's Robert Frank reports.

The world's total private wealth grew 7.8 percent last year, to $135 trillion, according to the Boston Consulting Group's Global Wealth report. The top 1 percent control $52.8 trillion, and those worth $5 million or more control nearly a quarter of the world's wealth. And since the wealthy's wealthy grows faster than overall global wealth, the concentration should only increase. Meanwhile, they're sitting on mounds of cash.

Quotes:

"We really have two economies right now. We have Richistan, and they are the wealthy. And they are benefiting from rising stock prices, cheap credit and soaring asset prices. They're doing really well and feeling confident."
—CNBC wealth reporter Robert Frank

"If you go to any store in Beverly Hills or New York or even Miami—the people in those LVMH or Kors or Coach, they're not speaking English. It looks like strong U.S. sales, but this is foreign money looking for status symbols and souvenirs in the U.S."
—Robert Frank

By Doug Cubberley, Special to CNBC.com

Market Insider with Patti Domm