That the U.S. economy has recorded a series of rather negative statistics lately, would not be a revelation to the informed investor / trader.

That the U.S. economy is set to record a new data point of ignominious distinction, perhaps would be.

Assuming a modest 50-point close higher or lower Monday, the Dow Jones Industrial Average will have declined about 9% in June 2008, its biggest drop in June since June 1930 in the Great Depression, when the Dow fell 18%.

At mid-day Monday, the Dow was up about 45 points to 11,390.95. The Dow is down about 3,000 points since trading above the 14,200 level in October 2007.

Stock analyst C. Leonard Bauer said "the Dow reflects the underlying economic reality."

Many negative fundamentals

'We have a smorgasbord of negative fundamentals. Housing is in a deep slump. Oil and gas prices are at 20-year highs. Corporate costs are rising. Disposable income is falling. Credit requirements are way up. Inflation is rising. And job growth doesn't look too good right now," Bauer said. "Other than that, as Groucho Marx would say, everything is fine economically."

Another factor weighing on stocks, at least for the near-term: 'sell in May and go away' - - the seasonal closing out of positions, particularly winning positions, Bauer said, as key decision makers at institutional banks and investment / hedge funds head for the Hamptons (Long Island, N.Y. ), the south of France, and other destinations, for the summer.
"Anyone with a sizable position in a stock who's up a great deal is going to take at least a portion of that profit off the table, particularly if it's in a sector that would suffer if worse economic news occurs in the summer," Bauer said. "That's accounting for a portion of the Dow's loss in the past month."

High oil prices cited

The other factor weighing on the Dow and other U.S. equity markets: oil prices, Bauer said. Oil, which hit a record $143.67 per barrel Monday morning before easing slightly to $141.73 at mid-day, is reaching levels "that will cause the U.S. economy to contract considerably" if the price remains at stratospheric levels.

"The only precedent we have regarding the impact of high oil prices are the two other oil shocks, in 1973 [197-74] and 1979 [1979-80]. We're a much more efficient economy now than we were then but all the data I've reviewed on disposable income says the trend is not good," Bauer said. "When oil and gasoline prices rise too quickly it disrupts a way of life, and people cut back spending in a big way. That's basically what's occurring now and it almost always leads to a prolonged recession. The economy just can't adapt quick enough to the high prices and the economy contracts. The Dow reflects that likely scenario."

Further, Bauer underscored that he is not economist and would not play soothsayer, but if he could undertake two acts to boost the U.S. economy he said he would, "do what's possible to lower oil prices, or the impact of oil prices on businesses and consumers," and "get more money into the hands of consumers and businesses" via another tax rebate and capital investment tax credit."