It has been a wild ride for the stock market for the past month, and the bullish camp was really hoping for a strong Friday close to wrap up the week. That was exactly what we saw on Friday, and after a slow start stuck in red territory, stocks rallied to finish with modest gains near their highs of the day. For the week, the Dow and S&P 500 were up 1.7% each, and the Nasdaq closed 2.5% higher. The S&P 500 is still about 8% below its summer highs, but this past week was a step in the right direction.
The big concern for the broader stock market right now is what the Federal Reserve has up its sleeve for its big powwow that takes place next week on the 16th and 17th. We continue to get mixed messages from various current and former Fed Heads, and we are getting a mixed bag of comments from various global strategists, but no clear picture has yet emerged on what the Fed will do. Economic numbers have been fairly supportive in making the case for a quarter point hike, so we will just have to wait and see.
It has been encouraging to see global financial markets settle down a bit from their recent roller coaster rides, which is one factor that could have the Fed launch a rate hike for the first time in nearly seven years. It sounds ominous that the Fed will “hike rates,” but the thing to keep in mind is that they are still pretty much at zero. At a quarter-point clip, it would still take a whopping four rate hikes just to get back to the 1% level! It seems that the economy is resilient enough to handle that, but with Alan Greenspan’s warning of a “taper tantrum,” there is always that possibility that we could see some “unintended consequences.”
The Fed normally hikes interest rates to keep a lid on inflationary pressures, but as we saw with Friday’s Producer Price Index (PPI) for August, there is no sign of inflation. The PPI came in at 0.0, and while that was a tad higher than the expected 0.2% decline, it was still down from July’s 0.2% rise. In other words, inflation is probably the last thing the Fed needs to worry about right now. We get the Consumer Price Index (CPI) out next week on Wednesday, and economists are looking for a 0.1% decline.
We did see some nervousness in the consumer arena, as the University of Michigan Consumer Sentiment Report slipped to 85.7, from July’s 91.9 reading. Economists were looking for a 90.3 level, but the weakness appears to have been caused by the volatile global markets that have rattled investors over the past month or so. Consumer confidence is key for the consumer-driven U.S. economy, so it is never a plus to see that sector get spooked like we have as China, Europe and U.S. went into spasms following China’s 3% devaluing of its yuan.
Whatever happens with short rates, the yield on the long-term U.S Treasury has settled down quite a bit to where it now sits at 2.16%. It had been up near 2.50% in early June, but then during the late-August global meltdown, it briefly dipped below 2.0%. At its current 2.16%, it is not affecting mortgage rates or corporate loans rates all that much, so regardless of short rates, the 10-year U.S. Treasury remains low and does not seem in any danger of spiking.
Oil prices are another concern, but crude dipped back down by 2.5%, to $44.75 in Friday trading. It has been having big price swings along with every other commodity and financial market, so we can probably expect more of the same as we head towards October. The Goldman Sachs call for $20 oil was very surprising to see this past week, and as much havoc as that might cause, it will have consumers smiling big if they are paying $1.50 for a gallon of gas. It is hard to believe oil was above $148 per barrel in 2008!
Well, the weekend is here, and the bulls made it through a tough week with a win. The Gorilla wishes each and all a relaxing September weekend, and it will probably be smart to get some rest. This sort of volatility does not go away quietly, so we can probably count on some additional “thrills and chills” into the rest of September and October. Again, have a great weekend, and we will be back in action on Monday!
Are you a less active investor, but enjoy reading the Gorilla Trades State of the Stock Market? If so, the Gorilla’s new service is perfect for you! The Gorilla Trades’ Daily Market Summary will become the one email you will come to look forward to every day. Get Try it free for 14 days! Try it out now at: Gorilla Trades LITE
See what Gorilla Trades has to say every week night, get the top stock market picks that the internet has to offer and start investing like the pros. Get the Gorilla Trades stock picking service free of charge!