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Whether Investors Sell or Stay, Economic Data Key in May

Whether they sell in May or stay and play, investors are warily eyeing the latest data and Tuesday’s ISM manufacturing survey will be no different.

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Monday’s Chicago Purchasing Managers’ data had the lowest reading since November, 2009, following Friday’s disappointing report of weaker-than-expected first quarter GDP growth.

The ISM manufacturing survey for April is expected to show a decline to 52.7 from 53.4 when it is reported at 10 a.m. ET. Analysts are concerned the decline could be steeper, but any number above 50 still shows growth.

“For the ISM number, there have been major manufacturing regional indicators, particularly New York, Philadelphia, and Chicago, that were all weaker than expected,” said Dan Greenhaus, chief global strategist at BTIG.

“Given the regionals, there’s certainly downside risk to tomorrow’s number. At best, you’re talking flat. If it turns up, it would be a huge shock. More likely it’s a 52 handle,” he said. The Chicago Purchasing Managers’ index fell to 56.2, compared to an expected 61 and down from 62.2 in March.

Besides the ISM number, analysts are watching April auto sales, expected to show an annual selling rate of 14.5 million vehicles. Construction spending is also reported at 10 a.m.

There are also dozens of early morning earnings reports, including from BP, Pfizer, Avon, Thomson Reuters, Biogen Idec, Cummins, First Energy, Foster Wheeler, Legg Mason, Marsh and McLennan, Valero and Huntsman. After the closing bell, Boston Properties, Broadcom, CBS, Chesapeake Energy, Caesars Entertainment, and Motorola Mobility report.

Fed officials will also be in the news. CNBC’s Steve Liesman interviews Atlanta Fed President Dennis Lockhart together with Chicago Fed President Charles Evans on “Squawk on the Street” at 10:30 a.m. ET. Both Fed officials are then on a panel at the Milken Institute global conference at 12:30 p.m. Also, Philadelphia Fed President Charles Plosser speaks at 3 p.m. in San Diego on the economic outlook.

The calendar is also an issue for markets, as investors have been wondering if history will repeat itself. For the past two years, stocks made their highs of the year in April, and investors really did sell in May.

“I don’t like forming investment strategies, based on old wives’ tales,” said Richard Bernstein, CEO of Richard Bernstein Capital Management.

“Either the fundamentals are improving or the fundamentals are not.”

Bernstein said he remains positive on stocks, and he thinks the economy will end up being better than investors currently believe. “I’m not disputing we could have some near-term volatility. I think we could,” he said.

“You could have a very funky employment number on Friday. I do think that’s a possibility, given some of the jobless claims that have come out. If you can think beyond next week, I think we’ll probably be ok,” said

Stocks finished April on a mixed note. The Dow was up 0.01 percent for the month, at 13,213, while the S&P 500 fell by 0.75 percent to 1397, and the Nasdaq was down 1.5 percent to 3046. The best performing S&P sector of the month was telecom, up 4.2 percent and the worst was the financials, down 2.5 percent.

Historically, April is the third best month of the year for the Dow. But data shows that if April is negative, the probability of the second quarter being negative is about 60 percent for the index.

According to Standard and Poor’s, the month of May is one of the more lackluster, with the S&P 500 gaining just 0.31 percent on average, less than half its average 0.67 percent monthly gain. May has also seen gains just 57 percent of the time, versus an average 59 percent for all months.

Monday’s trading was subdued, with stocks shrugging off the disappointing Chicago data and weakness in Europe. The Dow, in fact, was down 14 points, but moved in just a 52 point intraday range, its narrowest move in 13 months.

“We’ve been ‘wait and see’ since 1325 (on the S&P), or so. We’re trying to thread the needle here. Earnings are better than expected. Companies remain cautiously optimistic,” said Greenhaus. “Generally speaking the factors are in place for higher equities prices. The limiting factor is the macro. We’re sort of neutralish because we don’t know how things will unfold on numerous macro issues.”

“When you go meet with people who pick stocks, they like what they’re hearing. They like what they’re seeing (from companies), but from the top down, there’s still all these concerns that impact the picture. But depending on your views, it may not impact your investing outlook,” he said.

Many major world markets are closed for May Day, so U.S. trading could again be quiet.

May Day protests are expected to take place across the globe. Occupy Wall Street called for a general strike, and plans to protest around Manhattan. Occupy Oakland wants to shut down the Golden Gate Bridge.

Follow Patti Domm on Twitter: @pattidommQuestions? Comments? Email us at marketinsider@cnbc.com

  • Patti Domm

    Patti Domm is CNBC Executive Editor, News, responsible for news coverage of the markets and economy.

  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

  • CNBC Senior Commodities Correspondent and Personal Finance Correspondent

  • JeeYeon Park is a writer for CNBC.com. Follow her on Twitter: @JeeYeonParkCNBC

  • Rick Santelli joined CNBC Business News as an on-air editor in 1999, reporting live from the floor of the Chicago Board of Trade.

  • Senior Producer at CNBC's Breaking News Desk.