In early 2010, optimism was fueled by a 5.7% advance in fourth quarter 2009 GDP. The employment markets were still very weak, but stabilizing. Consumer spending and retail sales were advancing. All of these indicators pointed to a rebounding economy. In response, the market returned 7.0% from January through April of 2010. However, in May the market lost 8%, reacting to the beginnings of the European debt crisis, when Greece took a $145 billion bailout package and investors fretted over debt problems of the PIIGS (Portugal, Italy, Ireland, Greece, and Spain).

A similar pattern repeated itself in 2011. From January through April, the market returned 9.1%, as fourth quarter 2010 GDP grew 3.2% and “final sales” advanced 7.1%. “Final sales” is a proxy for economic demand because it excludes changes in business inventories. In response to stronger consumer spending, the employment market was showing signs of life as more than 200,000 jobs per month were created from February through April and the unemployment rate dipped below 9%. However, the beginnings of the economic slowdown caused by the March Japanese tsunami and lingering concerns over European debt saw the market lose 1.1% in May and post further losses for several months thereafter.

Now in the first quarter of 2012, the economy showed signs of life as consumer spending grew, inflation moderated, and employment growth accelerated to better than 200,000 per month. Europe wasn’t much in the news and global growth appeared to be accelerating. U.S. corporate profits grew in the double-digits. All of this supported a stock market advance of 11.9% from January through April.

Unfortunately, May wasn’t so kind (again!), losing 6.0%.

Why is this pattern of stronger growth early in the year and fading growth thereafter repeating itself? One theory has to do with the government’s calculation of seasonal adjustment factors, which are applied to raw economic data to “smooth out” the impact of items such as weather. The thinking is the severe downturn of late 2008/early 2009 made its way into the calculation of the seasonal factors and has introduced an upward bias to the fourth and first quarters of any year. There might be some truth to this. Also, this year’s results appear to have gotten a further boost from the unseasonably warm winter that supported activities that normally operate at a low level, such as construction and car buying.