Just as the bulls had hoped, we saw a solid upside finish on Friday that left the Dow above 17,000 and the S&P 500 a decimal below 2,000. It was a positive end to a tough week that saw the S&P 500 rise 2.7% for the week. The stronger-than-expected government employment report of 242,000 new jobs in February set the tone, and after a brief selloff early in the day, we saw the major indices rally and close the day to the upside. Economists were looking for 195,000 new jobs, which was up from January’s 172,000, but the 242,000 we saw calmed fears that the U.S. economy was slowing. Stocks have recovered most of the correction declines we witnessed in January and February, and it was a great way to head into the weekend.
The problem with the strong jobs number is that it reopens the door for a Federal Reserve rate hike sooner rather than later. We all know how the stock market reacted to the December rate hike of a mere 25 basis points, so the thought of ramping up toward another rate hike could rattle markets once again. The buzz is that the Fed will hold off on any rate hike when it meets the week after next, but the jobs report has put a possible April or summer rate hike back on the table. Given the roughly 10% drop and subsequent 10% rise in the S&P 500, it seems as though the Fed would not want to repeat that sort of roller-coaster ride anytime soon. For that reason, we can look for soothing comments from the Fed at its next meeting.
We can likely count on “soothing” comments and actions from the European Central Bank (ECB) when it meets next week, and we have already seen big rallies in the Greek stock market in the anticipation of more QE and help. It seems as the banking meltdown of January and February in Europe has run its course, as the rally in European financials has been impressive. This is how the ECB works, though, and Mario Draghi and the ECB can ALWAYS be counted on to do whatever it takes to help the weaker links of the EU to somehow avoid disaster and live to fight another day. We have seen bailout after bailout for years, and the ECB has become a master at that game.
The other “wild card” that sent global financial markets reeling this year was having the price of oil plunge to around $27 per barrel. Well, oil was up another 5% on Friday, which put crude prices back above $36 per barrel. All of the strategist calls for oil falling to $20 per barrel have fallen by the wayside, and oil seems to have stabilized for the time being. This has relieved fears of a global GDP slowdown, and it has clearly helped give global equity markets the impressive bounce we have seen in the last few weeks. The big worry about a global GDP slowdown still rests with China, so we will continue to monitor Chinese economic numbers for signs of weakness.
As for the U.S., we continue to get good but not great economic news. The jobs report on Friday was a plus, but the general economic numbers for the U.S. are mixed. Housing remains strong, and there were even reports of the reemergence of “house flipping” in many regional markets that have obviously reheated greatly since the housing bubble of the last decade. This might be a positive sign, but it also could be the revival of a housing bubble that might end badly. Fast and loose lenders have made a comeback, which is amazing given what the housing market went through over the past ten years. There is never a dull moment in the housing market, and it will be interesting to see how this “new” rise in home values unfolds.
What is amazing about this recent stock market bounce is the fact that the major indices are not only back above their 50-day moving averages, but they are within striking distance of their 200-day moving averages! The S&P 500, for instance, closed right at its 200-day moving average of 2,000 on Friday. That is a technical plus for the S&P 500, and the Dow is just below its 200-day moving average of 17,047, while the Nasdaq is close to its 200-day moving average of 4,795. The 200-day level is often a “game on” sign for institutions, so bulls are hoping we can continue this upside trajectory next week.
On the political front in the U.S., it seems completely up for grabs in terms of the Presidential race. Investors do not seem overly worried about all of the infighting and mean-spiritedness in both parties (particularly the Republicans). The general consensus is that a divided government is good for the stock market, and that likely will be what we get in November, as neither party seems likely to have a real mandate for any sort of change. It is political drama just the same, so sit back and enjoy the show. That said, the Gorilla wishes each and all a relaxing weekend. It is great from the bullish vantage point to have rebounded so soundly from a tough January and February. Again, have a great weekend!
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