Stock March Madness: Why It Might Be Over Soon

Includes: DIA, SPY
by: Derrik Lattig

As major stock indexes fell Friday afternoon, consumers subliminally will start to wonder: is the madness over? In afternoon trading, the Dow Jones Industrial average was down 37.5 points or .2% - a day after the infamous stock benchmark notched its eighth record close at 14.539.14 and chronicled the longest winning streak since November 1996.

With the Dow down from its record week, other indexes followed in its footsteps. The S&P 500 was down, but only 4 points away from its all-time closing high of 1,565.15 set in October 2007.

Investor confidence about the economy has pushed markets around the globe to reach record benchmarks in the month of March, and remains to be one of the best calendar months in years for traders.

For many, this month represents the tradition and madness for the sport of college basketball- in which a season-ending tournament ensues and provides an atmosphere unrivaled by other collegiate sports- but one could argue that it's been a month of madness for stocks as many new records were set. Of course, the notion that these were "record" highs was not, strictly speaking, true. As Jeff Cox as CNBC pointed out, "in inflation-adjusted dollars, the Dow would need to hit 15,731.54 to break the record." Nevertheless, the exciting new number sitting on the stock market index set off a chorus of hallelujahs, but is it coming to an end?

On Friday, a spike in gas prices drove the consumer price index (CPI) up in February by the most in more than three years. The consumer price index increased a seasonally adjusted 0.7% last month from January, the Labor Department said Friday, making it the biggest monthly rise since June 2009. Total energy costs also rose 5.4% and prices for natural gas and home heating oil also showed large gains.

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As shown in the graph below provided by the Bureau of Labor Statistics (BLS), prices for intermediate materials, supplies, and components moved up 1.2 percent for the 12 months ended in February- the largest over-the-year increase since a 2.9-percent advance in March 2012.

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Additionally, according to a survey released on Friday, Consumer sentiment also tumbled to its lowest level since December 2011, caused by dissatisfaction in government economic policies and little improvement in employment growth and labor market. The Thomson Reuters/University of Michigan's preliminary reading on the overall index on consumer sentiment dropped to 71.8 from 77.6 in February, short of expectations for 78. Real average hourly earnings for production and non-supervisory employees fell 0.6 percent from January to February, seasonally adjusted. So what does all of this mean?

With the renowned adage of "Sell in May, Go Away" creeping closer, and unemployment still reaming at 7.7 percent, the next few months will be a telling time for many stockholders. If consumer confidence continues to fall and consumer prices rise, investors will need to pay close attention to the possible ramifications resulting from these damaging statistics.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.