Financials Fall

Tuesday morning we will learn how the Consumer Price Index fared in April. In a market obsessed with inflation statistics, the news has the potential to swing stocks and bonds in either direction. For this reason we would not read too much into today's mild downturn in the benchmarks. Major players won't make any big moves until tomorrow.

The leading sector on the downside for most of the day was financial services. An influential analyst downgraded the entire group due to concerns that rising bond yields will cut into earnings. Technology was not far behind, however. News that a private equity group will buy a controlling interest in Chrysler from DaimlerChrysler (DCX) was no great surprise but created speculation about the future of Ford (F) and General Motors (GM). The automakers, incidentally, were a prime reason the Dow managed a gain today while other benchmarks fell. The utilities, energy and health care sectors posted small gains. Materials and real estate were down.

On an intermediate-term basis, most sectors have lost some momentum over the last week but still remain firmly bullish in other respects. With major resistance just ahead for the S&P 500, some consolidation may actually be helpful at this point. Corporate news is still quite positive; profits at U.S. companies appear to have just marked their 19th consecutive quarter of double-digit percentage gains. Worries just a few weeks ago about housing and mortgages have faded away, at least for now.

Market lore says it is a good idea to "sell in May and go away." Probably some people will do so. We have a different view: seasonal tendencies are exactly that: tendencies. They are not guarantees. Long-term market strength does not appear to be in any danger for now. A disappointment in tomorrow's CPI report could certainly change the outlook.