State of the Stock Market Analysis for the Week Ending July 26th, 2014 (Amazon (AMZN) and Visa (V) Set Negative Tone 7-26-14)
Amazon (AMZN) and Visa (V) Set Negative Tone

Amazon (AMZN) and Visa (V) set a negative tone on Friday, as both announced earnings that fell short of analysts’ expectations. Visa is a Dow component, and that weighed heavily on the Dow. To the bulls’ displeasure, it helped the Dow dip back below the closely-watched 17,000 level. The Dow was down 0.8% for the week, while the S&P 500 was basically flat. The Nasdaq was the bright spot for the week, as it gained 0.4%. It was a mixed week for earnings and economic numbers, which leaves the bullish camp hoping that the stock market can find some renewed luster next week to close out July on a positive note.

We did get a decent-looking durable goods number for June, though, but that was not enough to keep the sellers at bay during Friday’s session. Bulls were hoping that the Summer Rally would reassert itself this week, but we simply did not get enough positives to keep stocks chugging higher. It was great to see the S&P 500 hitting all-time highs, but it did so in lackluster fashion. We are still hanging tough near those highs, which is a plus given the ongoing tensions in Ukraine, Russian and Israel. These recent global shocks have left many investors feeling skittish, so we will just have to wait and see what happens in these global hot spots.

Alan Greenspan was back in the news this week touting his book release that will occur this fall. Greenspan said that the Fed has its work cut out for itself in reducing its massive balance sheet full of many of the treasures created during the housing boom and subsequent financial meltdown. When asked of past mistakes, Greenspan said that he probably should not have put so much faith and trust in the biggest banks. He lost some of his luster after retiring in 2006, just a couple years before everything imploded, but either way, it was nice to hear that the 88-year-old Maestro is still out there commenting as only he can do.

He also mentioned bubbles, human nature, and the role of the Fed in managing the economy. Interestingly enough, he commented on the difficulty the Fed had as so many investors and institutions “second guessed” the actions of the Fed. Greenspan presided over the bubble, as well as the housing bubble that followed, so it was interesting to hear his perspective more than eight years after retiring. His legacy is sound, though, and his book should be interesting. He is likely enjoying his consulting and speaking fees in “retirement” since they are undoubtedly a whole lot more than he used to make as Chairman of the Federal Reserve.

Next week is a big one for financial news, and we should get some clarity as to how much the economy is improving (or possibly not improving). This week’s scattering of earnings misses and the big trailing-off of new home sales have many economy watchers scratching their heads. It seems as though we should be seeing a more vibrant economy this far into the recovery, especially with short rates from the Fed still near zero and the yield on the 10-year Treasury hovering down around the 2.50% level.

The decline in weekly jobless claims to an eight-year low this past week was encouraging, so all eyes will be on the ADP jobs report on Wednesday (last month’s number was 281,000 private sector jobs), and the government jobs report due out on Friday. Economists are looking for 228,000 new jobs, and that number is down from May’s solid-looking 288,000 new jobs. The unemployment rate is predicted to fall to 6.0%, from the previous month’s 6.1% rate. Jobs are the key to a healthy economy right now, so stay tuned.

The Federal Reserve meets next week as well, and we will get its outlook and opinion on Wednesday afternoon. The Fed has been working on plans to shrink its balance sheet, so it will be interesting to see if it has any fresh strategies. The Fed is still set to end its bond-buying at the end of October, and while interest rates have not edged higher at all during the Great Tapering, there is always the chance that longer-term rates could start edging higher. Further down the road, the Fed has hinted that actual rate hikes could begin in mid-2015. So again, we might not get the same smooth sailing for stocks that we have had for the past five years.

The Gorilla wishes each and all a wonderful, late-July weekend. We are in a bull market that continues to impress, and the fact that it is holding up so well despite so much “mixed” news, is very encouraging for most bulls. We are heading into that historically tough August-September-October time of year, so enjoying a weekend of calm might be the best thing to do right now. Again, have a great weekend and we will be back in action on Monday!

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