Bulls were pleased to see the stock market close out Friday to the upside, even though Friday’s gains were quite modest and subdued. A win is still a win, though, and bulls were quite happy that Friday’s action ran counter to an otherwise rough week for stocks. While the stock market for 2015 is basically flat for the year, it was clearly a plus for the bulls to see the major indices finish out Friday with modest gains. As for weekly totals, however, we saw losses of 2.3% for the Dow, 2.7% for the Nasdaq and 2.2% for the S&P 500. It was not that bad of a week when you consider there were enough negatives out there to make even the most bullish of bulls feel a bit perplexed.
Once again, all of the talk of a tiring bear market combined with a host of other negatives to weigh heavily on the stock market all week. The big worry on Friday was that we might see a big shortfall in terms of fourth-quarter GDP and consumer sentiment, as well as a challenging earnings season that could really send the stock market into a nosedive. There were also concerns about Friday’s 5%-plus decline in then price of oil, which merely kept the stock market in check as investors consider which way the market might move from its current juncture.
What DID help stocks a great deal on Friday was that fourth-quarter U.S. GDP number came in at the “as-expected” 2.2% growth rate. It was below the 2.4% GDP rate that economists had predicted, but it was still not a “shocker” of a number that could have spooked stocks in a big way. Likewise, it was encouraging to see consumer sentiment for March come in at 93.0 versus the expected 92.5 level, and it was also a relief to see sentiment improve so much with regard to last week’s 91.2. So, with GDP and consumer sentiment looking so good, many strategists thought we might have seen a bigger bounce in the stock market on Friday.
The broader bounce in stocks that bulls had hoped for was simply nowhere to be found this week. What IS worrying investors are the ongoing hawkish comments from the Federal Reserve, which do not seem to be letting up at all. On Friday, Janet Yellen again made comments that gradual rate hikes are very likely this year, and that is a theme that global financial markets are having trouble digesting. In recent weeks, the mere thought that the Fed would raise rates had financial markets feeling scared, and as the Fed makes it clearer that rate hikes are coming, the more and more stock and bond markets are reacting negatively.
If fear levels in the stock market remain elevated, we could easily see the Fed back off from its recent hawkish tone, and that, in turn could send stocks soaring to the upside. The Fed does seem determined to raise rates, though, and the buzz is that sooner might be better than later. We will have to see how this drama unfolds in the weeks ahead, and the Fed has made it clear that its actions will be “data driven.” Much of the recent “data” has been weak, though, and if the weak data continues, we can likely expect the Fed to quickly backpedal on its recent hawkish posturing.
As for next week, all eyes will be on Friday’s March non-farm payrolls number. Economists are looking for 255,000 new jobs, and that would be down from February’s 295,000. Since February’s number helped suggest the Fed would lean toward raising rates, a weaker-than-expected number might do the opposite and cause the Fed to turn decidedly dovish and back off on its interest rate bandwagon. This could cause stocks to breathe a sigh of relief and rally big, so this might explain why some bulls will be rooting for a weak jobs number next Friday.
We do have earnings season kicking off in April, which is another “wild card” for the stock market. If we were to see weakening earnings AND a weak employment report, it would make it very difficult for the Fed to justify rate hikes sooner rather than later. This sort of “bad news is good news” scenario emerges from time to time, and oddly enough, the stock market seems a lot more worried about rate hikes right now than anything else, so stay tuned as next week will likely be very telling.
That said, the Gorilla wishes each and all a relaxing weekend. The NCAA Basketball Tournament is action-packed and in full swing, so enjoy that as well if you are so inclined. Earnings season should give us a very clear look under the hood of the economy, and these same earnings should help better clarify just how strong (or weak) domestic GDP really is right now. Again, enjoy the weekend, and we will be back in action on Monday.
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