Despite the missile attack in Syria last week, and the MOAB bombing this week in Afghanistan, the stock market held up relatively well. Conventional wisdom would have said we should have seen major market declines. Yes, the Volatility Index (VIX) did spike above 16 on Friday, but the market kept its composure. The major indices closed out this holiday-shortened week with modest declines of 1.0% for the Dow, 1.3% for the Nasdaq, 1.2% for the S&P 500. Friday’s late-session slide left the majors at their lows of the day, but the good news was that we avoided a major meltdown.
As for Friday’s economic news, we saw both good and bad news. Retail sales declined by 0.2% in March, and that followed February’s adjusted 0.3% decline. This was the roughest two-month stretch for retail sales in two years, and it means that maybe consumers are not as confident as this week’s solid consumer confidence number suggested. This will be an interesting trend to watch for next month, especially since the consumer confidence number we saw this past week probably did not reflect the growing number of global hot spots.
In other economic news, the Consumer Price Index (CPI) for March fell 0.3%, which was down from February’s 0.1% increase and more than the 0.1% decline economists had expected. The “core” rate fell 0.1%, and that was a big slide from February’s 0.2% increase and the expected 0.2% increase analysts had predicted. This raises the question of whether we are slipping into a “deflationary” economy right now, and if we are, it will make any additional rate hikes by the Federal Reserve questionable.
Several strategists said Friday that the broader economy, particularly employment and housing, remains strong enough that Janet Yellen and the Fed will likely stay on track for a couple more rate hikes this year. The problem for the Fed is that if the market downturn were to continue, it would make it difficult to raise rates. Combining global tensions and a falling stock market might send stocks plunging. It was interesting to hear President Trump say Janet Yellen might stay in place next year and that he “supports low interest rates.” It is amazing how quickly Trump is becoming a “politician.”
As for the major indices, the Dow and the S&P 500 have dipped below their respective exponential 50-day moving averages of 20,542 for the Dow and 2,340 for the S&P 500. The Nasdaq is holding slightly above its 50-day moving average of 5,802. The small-cap Russell 2000 closed at 1,345, which puts it below its 50-day moving average of 1,367. Thus, it will be interesting to see if the major indices can bounce higher next week. As for their 200-day moving averages, the majors are still solidly above those levels that are 19,460 for the Dow, 5,467 for the Nasdaq, 2,241 for the S&P 500 and 1,303 for the Russell 2000.
The Trump Rally that followed his early promises of tax cuts, deregulation, and infrastructure spending is on hold, and the question is whether the focus can move back toward the issues that revved up the stock market enough to hit all-time highs in early March. Having missiles and bombs dropped on “hot spots” on two sides of the world does not exactly make investors feel very bullish. The good thing is that the broader stock market is holding up well, and now that earnings season is underway, we should get some clarity about the economy in the days and weeks ahead. The Gorilla wishes each and all a happy holiday weekend, and we will be back in action on Monday!
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