Why a summer rally is possible

by Michael Tarsala

The ongoing stock market selloff should be less harsh than in the past two years, says Liz Ann Sonders, Schwab's chief investment strategist.

You can read her latest strategy update here.

Here's a cheat sheet:

-- A Q2 selloff could set the stage for a summer rally.

-- Sell in May doesn't work well in election years: The Dow has been up 4.5% in May through October in election years and up 2.6% during those months for all years.

-- Schawb has maintained its "outperform" rating on technology stocks.

-- And despite a strong performance in most May-October periods, it has an "underperform" rating on utilities.

Perhaps more importantly, there are more positive market influences than at this time the past two years, including:

• An improving housing market
• Falling commodity prices
• A strong manufacturing sector
• Strong consumer credit growth
• Improved jobs numbers
• Less leverage in the private sector
• More state and local government spending
• Low valuations on forward earnings
• Investor pessimism is back (a contrarian indicator)

Also read Covestor's Smarter Investing posts for additional market insights, including why the best reason for optimism is pessimism, stock market cues that may come from silver and gold, and why we are probably not starting another major correction.

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