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Stocks Slump: Is a Summer Meltdown or Pre-Election Rebound Ahead?


Stocks are under pressure today in the aftermath of the weaker-than-expected May jobs report, a surprise drop in Factory Orders reported earlier, last Thursday's revision to Q1 GDP to 1.9% from 2.2%, and more signs that China's economy may be slowing. The major U.S. indexes are close to giving up all gains for 2012. The Dow Jones Industrial Average went in the red on Friday, and the S&P 500 is another 1% away from turning negative, while the Nasdaq is still roughly 5% higher for the year.

"This is where we cross the rubicon," says Lee Munson, author of Rigged Money and CIO at Portfolio, LLC. "We're in an election year," he continues, pointing to historical data that indicates the weakest months leading up to a presidential race are April and May and the strongest are June, July, and August.

"June is going to be the time where you want to get in there and buy and have a very nice summer rally," he says.

But Munson is quick to admit the fundamentals are equally important, and you must pay attention to slow growth in the labor market. Last week we saw weakness across the board in the Labor Department's latest jobs report, as well as a surprise jump in initial jobless claims.

"You have to talk about the job market because overall, over the past couple years, we are making headway. But believe me, nobody likes the pace, including myself," he says. "Nobody likes the type of jobs we're creating; nobody likes the speed. But the bottom line is, we're off the bottom."

And as for the looming threats that will remain in focus through this summer, they're all front and center already, and not likely to jolt the market lower.

"Europe is still a disaster, the deficit cliff is still a disaster, and China continues to have this hard landing-esque landscape. So if we get some type of swoon, which I think we just had, I think it will have less impact, and the rebound should be just as sweet," says Munson. "I think people should not bet that it's going to get as bad as it did last summer."

So if you're willing to shrug off the headlines and buy stocks, Munson advises you keep it simple: Avoid Europe and stick with the S&P 500. And, oh yeah, he's considering buying into Japanese stocks (EWJ) this week! He couldn't leave us without throwing just one curveball.

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