Bulls were looking for a win on Friday to close out the week, and that was exactly what we saw. Having the S&P 500 close out the first trading week of September at an all-time high closing price was the perfect way to head into the weekend, and it had investors thinking that maybe September will not turn out to be a “rough and tumble” September after all. The overall week was fairly tame, though, as the Dow and S&P 500 booked gains of around 0.2%, while the Nasdaq ended essentially flat for the week.
The government jobs report on Friday was disappointing, which led to early morning declines that reversed enough to boost the major indices into green territory for Friday’s close. For August, there were 142,000 new jobs created, which was well below the 228,000 that economists had predicted. The number was also down from July’s 212,000, and that left many investors scratching their heads. Economic news has been good but not great lately, and the bullish camp was really hoping for signs of life and vibrancy in the economy.
Seeing the job picture still look flimsy was both good news and bad news. It was good news because it takes all of the pressure off the Fed to increase interest rates anytime soon. The economy is still mediocre at best, so again, the Fed is completely off the hook with regard to rate hikes. The bad news is that the economy is still far from hitting on all cylinders, which could make for a disappointing earnings season that kicks off in October. Without earnings and revenue growth, it will be difficult to justify the S&P 500 at an all-time high, so this is a big concern as we head toward October.
NATO concluded its two-day meeting in Wales this week, and there was a lot of talk about sanctions and how to deal with the Russian pressure on Ukraine. British Prime Minister David Cameron vowed to put 3,500 British troops into action in Eastern Europe to deter the Russians from any additional aggression in the area, but time will tell if this causes Vladimir Putin to back down. There has been no new escalation of tensions in Ukraine, so that was a plus this week, but Ukraine still remains as a “flash point” that could send global markets reeling if the situation there unravels.
On the domestic U.S. front, we may have been relatively flat in the stock market, but there are some big events on the docket for next week. Apple (AAPL) is set to announce the launch of the iPhone 6 on Tuesday at its annual product rollout conference. Expectations are high, and with increased competition from the likes of Samsung, Tim Cook and the crew at Apple really need to deliver. There is a lot of buzz about the unveiling of the iWatch mobile device, so again, the pressure is on for Apple to once be the “Steve Jobs-Caliber” Apple it once was.
We should also see the IPO of Chinese Internet giant Alibaba, which was priced this week at $60-$66 per share in an offering that would raise more than $20 billion in one of the biggest IPOs of all time. This would value Alibaba (with the very cool ticker symbol BABA) at more than $160 billion dollars, and if anything, the BABA IPO is good news and bad news. It is good news because it shows that the market is still vibrant enough for BIG IPOs, but it is bad news because BIG IPOs often correspond with market tops.
Either way, next week promises to be another telling week for the broader stock market. This week was also supposed to be a “telling” week, and the fact that the stock market was basically flat told quite a tale. The tale it told was that as strong as the stock market has been this year, there is still an awful lot of worry and skepticism. Bulls had hoped that the new month would have seen giant slugs of money moving into the stock market, signaling confidence, optimism and hope. The relatively flat close this week showed that investors want to see REAL growth and REAL profits before they get back into the game in a big way.
This hesitancy puts a lot of pressure on third quarter earnings reports that will start coming in beginning in October. Economic news is still mediocre at best, so any shortfall in earnings could really whack companies that disappoint. This is the theme that is emerging, and investors have taken a “show me the money” mentality, regardless of what the ECB or the Fed may offer in terms of accommodation or help. This means that September might not be “rough and tumble,” but it could easily be a challenging month for the equity markets.
That said, the Gorilla wishes each and all a relaxing September weekend filled with fun, football, friends and family. The S&P 500 closed at an all-time high on Friday, and that is a superb way to head into the second week of September trading. Global shocks are not in the news, nor are they seemingly on the horizon, which is another plus. Again, have a great weekend and we will be back in action on Monday!
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