State of the Stock Market Analysis for the Week Ending June 25th, 2017 (The Market Reacts to Amazon’s New Purchase 6-25-17)
Bulls were hoping for a strong finish to a long week, but we ended up flat and mixed on Friday. It was a big plus to see the Nasdaq rise by nearly 0.5% on Friday to close out the week up 1.8%. The slide in big-cap tech seems to have run its course, which was a big relief for the bullish camp. The Apples (AAPL) and Google/Alphabets (GOOG/GOOGL) of the tech realm have been the “lead dogs” of the multi-year rally in the stock market, so when we saw these big names fall over the past couple of weeks, there were concerns about a broader market selloff.
That broader selloff has not occurred, and that has bulls feeling good. The Nasdaq has had a good bounce, the Dow managed to finish flat for the week, while the S&P 500 gained about 0.2%. The combination of having the Nasdaq bounce and the Dow and S&P 500 close flat-to-slightly higher for the week is a fantastic way to head into summer. To have the mega-techs avoid a broader meltdown that could have dragged the stock market down will continue to help the stock market as long as the mega-techs can continue to rally.
With stocks at or near all-time highs, the question is… “What could upset the apple cart?” The economy seems to be humming along, so another question is whether the Federal Reserve might overdo it on the interest rate front. On Friday, St. Louis Fed President James Bullard made comments that the Fed would continue on a “wait and see” approach toward interest rates. This is yet more “dovishness” from the Fed, and as long as the Fed remains “dovish,” it means that investors do not have a worry in the world.
The only thing that could derail the current bull market and the ongoing strength in the housing market would be higher interest rates. The Fed has control over this scenario, and it seems in no rush to pummel stocks or home prices in its quest to “normalize” interest rates. Some Fed watchers are saying that this all but guarantees no rate hike for the rest of 2017, and some of these same Fed monitors say rate hikes might be on hold well into 2018. That is a somewhat extreme view, but who knows?
On the economic front, new home sales for May rose to 610,000 versus the expected 590,000 number and April’s 593,000. This is a very positive sign for the economy and consumer confidence in general. It was the housing bubble ten years ago that blew up the economy, and it is amazing to see housing act so well ten years later. The recent strength in housing comes without all of the bad loans we saw ten years ago, so this ongoing strength in the housing market is a definite plus as we head into summer and the final half of the year.
The economy is clearly holding up well, which should provide the “upward fuel” necessary for the major indices to break out to new highs. What worries some bulls, however, is that politics, global tension, and interest rates could keep a lid on higher highs for stocks. For this reason, we could definitely use some “good news” in the days and weeks ahead. That said, the Gorilla wishes each and all a wonderful summer weekend. We will be back in action on Monday, so again, enjoy this June weekend!
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