Bulls were hoping for a late-session bounce on Friday that might have at least pushed the S&P 500 back above 2,000 or prevented the Dow from closing below 17,000, but that sort of performance was not in the cards. It was a down day on Friday, which closed out a tough week that left the S&P 500 down 1.1%, the Dow off by 0.9%, and the Nasdaq 0.3% lower. There is a bit of hesitancy in the stock market right now as it braces for the Fed next week, and that likely kept many buyers on the sidelines in Friday’s action.
The Federal Reserve is set to end its bond purchases in October, so that might be driving worry levels up a bit. We saw the yield on the 10-year Treasury actually spike a bit this week from 2.4% on Monday, to above the 2.6% level on Friday. That is still historically low, but it does show that the longer-term bond market is still alive and kicking. This could mean that bondholders are beginning to think long and deep with regard to what the Fed has up its sleeve with regard to “normalizing” Fed operations. For next week, it will not be so much what the Federal Reserve DOES, but rather what it SAYS.
The buzz over the past six years was that the zero interest rates from the Fed would combine with all of the billions and billions worth of securities purchases to unleash Weimar Germany-style inflation in the U.S. and possibly across the globe. Somehow inflation never really reared its ugly head, although there were a few scares here and there over the past few years. Inflation still could be a threat, but it has simply not yet occurred. We will continue to closely monitor longer-term bond yields in the weeks and months ahead, as well as what Janet Yellen and the gang have to say as we head toward 2015.
Even though the stock market closed on Friday with a bit of a “thud,” there was still some great news regarding consumers. August’s retail sales rose an “as-expected” 0.6%, which was up nicely from July’s 0.3% rise. In addition, the University of Michigan Consumer Sentiment Report came in at 84.6; its highest reading since July of 2013. The number topped estimates of 83.8 and also improved on August’s 82.5 level, and this encouraging news suggests that maybe consumers are finally back in action and ready to spend, spend, spend.
There is a lot of interest in the debut of Alibaba (BABA) when its IPO launches next week, and the initial pricing puts it in the $60-$66 per share range. With a potential market cap at more than $160 billion, it is definitely revving up the “animal spirits” on Wall Street. Some analysts have said the BABA hype could be the sign of a broader market top, but then again, the generally favorable analyst views about the company have made it clear that Alibaba is no dot-com, bubble-type offering either. It will definitely be interesting to see how BABA trades next week.
It will also be interesting to see how that Scottish vote goes about whether Scotland should break away from Great Britain. English stocks recently took a hit when the polls were showing that the initiative might actually have a chance of getting a “yes” vote. It certainly brings back memories of Mel Gibson as William Wallace in the classic movie Braveheart, so we shall have to wait and see how the Scottish electorate votes. The election is scheduled for next Thursday, the 18th.
So here we are nearly halfway through September, and it is still not overly clear which way the stock market will be headed as we move toward October. It has been sort of a “good news, bad news” September in that it has been great seeing stocks hold up near their recent highs, but it has been disappointing to see the broader market fail to break out to higher highs on big volume with a lot of gusto. Maybe we will keep seeing strong economic numbers as well as a lot of upside surprises when earnings season kicks off in October.
That said, the Gorilla wishes each and all a wonderful and restful weekend. This is a beautiful time of year in most parts of the country, and it is magical seeing the leaves are already beginning to change. Let’s hope that confidence levels continue to hold up for consumers, as well as for confidence levels to hang tough with regard to the stock market. September and October can sometimes be rough, but with this week’s moderate decline, we are looking solid for the year. Again, have a great weekend!
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