It was a roller coaster week for the stock market as mixed economic news, mixed earnings news, and global concerns pushed and pulled stocks in both directions. When the closing bell rang on Friday, however, the major indices ended with some decent weekly gains of 1.4% for the Dow, 1.8% for the S&P 500 and 3.3% for the Nasdaq. The Nasdaq hit a new 15-year high, and the S&P 500 touched an all-time high, but the Dow was unable to join the celebration as it wrapped up the week about 200 points away from its own all-time high. Bulls were pleased overall, though, and few were complaining.
The Nasdaq led the charge on Friday thanks to what the financial media referred to as “old tech” stocks. Strong earnings and announcements from the likes of Amazon (AMZN) and Microsoft (MSFT) powered the Nasdaq rise, and it finished within striking distance of its all-time, intraday high of 5,132 that it established way back on March 10, 2000 during the infamous “dot.com” tech bubble. Amazon rose 14% for the day, and Microsoft rose 10% on earnings news and lots of talk about both companies launching “cloud” initiatives in the near future.
Amazon was one of the first legitimate “Internet” stocks, that along with Yahoo (YHOO), eBay (EBAY) and America Online (AOL), helped drive the Nasdaq Bubble of 1999-2000. Amazon was one of those stocks that many Wall Streeters loved to hate because “all they did was sell books online at a loss.” The rise back then drove Internet bears insane, and the bubble unleashed an investment mania that eventually collapsed. Some of the early Internet companies did move on to fame and fortune, though, and Amazon is one of the big success stories.
Friday’s 14% gain took Amazon to a new, all-time high, and it now sports a market capitalization of more than $200 billion. One of the interesting side stories of Amazon’s big day was the wealth gain of its innovative founder Jeff Bezos, whose 18% stake in Amazon rose nearly $5 billion on Friday alone. That is not a bad day for a guy who started a company that sold books online at a loss! Amazon has moved into many new businesses, and its new “cloud” focus had buyers stepping into the stock in a big way on Friday. Way to go Bezos!
With the Nasdaq revisiting its all-time high from 15 years ago, there is some talk of a new “tech bubble” possibly emerging. Tech bulls are quick to say that “this time it’s different,” and that tech companies today are far more profitable and well run than many of the “dot.com” flashes in the pan of 1999-2000. The only problem with saying that “this time is different” is what so often happens when investors all agree that “this time is different.” Those four words have historically been a sign of doom for whatever hot investment gets tagged as bullet-proof, so that is just something to keep in mind if this latest surge in tech surges ever higher.
One of the “wild cards” out there that could rock the bullish boat is whatever the Federal Reserve might have up its sleeve with regard to interest rates. It is clear that the Fed would like to raise rates and get things “back to normal.” The problem is that the Fed has kept short rates at or near zero for more than six years, and many investors have forgotten that the Fed actually CAN raise rates. It used to be called “taking away the punch bowl,” but the bullish party has been going so well for so long that NO ONE wants the Fed to shut down the party.
This is what makes this coming Wednesday’s Fed announcement so important. It has hinted at rate hikes, but every time it HINTS at rate hikes, the stock and bond markets convulse to the downside. Inflation is nowhere to be seen right now, so the Fed will have a tough time making the case that a rate hike is “necessary.” In addition, the Fed could never say it is raising rates because the stock market is moving too high, too fast. A June rate hike seems unlikely, and even a September rate hike seems unlikely, but the Fed knows that it cannot leave rates at zero forever.
The first quarter GDP number is due out on Wednesday, so it will be interesting to see if the economy tops that expected 1.2% rate or falls short. Again, this puts a lot of pressure on the Fed, since it is likely loving the recent rise in the stock market, and it does not want to be the guy to take away the punch bowl. Whatever the Fed does have to say on Wednesday, it promises to be an exciting week for the stock market. Earnings and economic news have been mixed, but the S&P 500 did hit an all-time high this past week, so the question for the Fed right now is (to quote Clint Eastwood of Dirty Harry fame) “Do you feel lucky?”
We shall see next week. The S&P 500 may have hit a new high, but there is not much out there in the way of runaway bullishness at all. In fact, there is an awful lot of worry, and strangely enough, worry helps bull markets remain intact and move higher. That said, the Gorilla wishes each and all a wonderful and restful spring weekend, and we will be back in action on Monday. Have a great weekend!
Are you a less active investor, but enjoy reading the Gorilla’s State of the Stock Market? Then the Gorilla’s new service is perfect for you! Try it free for 14 days, and then subscribe at the low introductory rate of just $199! Check it out now at: Gorilla Trades LITE
Enjoy this stock market analysis and want to see more of what Gorilla Trades, the best stock picking company, has to say every night and weekend? Try the Gorilla Trades stock picking service FREE of charge!