It was a tough first quarter for the stock market, but the numbers were not all that bad. For the quarter, the Dow was up 1.4%, and the S&P 500 was up 1%, while the Nasdaq was down 2%. The new quarter that kicked off yesterday saw stocks head moderately higher, which was a bullish way to close out the week. The plunge of January and February is behind us and beginning April on a positive note is a good sign. Even better is the fact that the major indices are holding tight at their newly elevated levels. We still may be relatively flat and mixed for the year, but at least we have rebounded from the 10% correction in the S&P 500.
On the radar for Friday was the government jobs report, and after several downgrades, economists were looking for 203,000 new jobs. The 215,000 that came through topped lowered expectations, and that seemed to put investors in a good mood to close out the week. The March number was down from February’s 245,000, but it was still a solid enough number to keep the stock market buoyant. The unemployment rate did tick up a bit to 5.0% versus the expected 4.9%, but no one was complaining about the 215,000 new jobs. It was a good number but not a great number, and it helped the stock market close out the week with a win.
It seems as though Janet Yellen’s speech to the Economic Club of New York also helped keep investors in a good mood. She gave an extremely dovish talk that made it clear that there would be two interest rate hikes this year at most. She zeroed in on global growth worries and reassured us that the Fed would remain “data driven” with regard to rates. In other words, we can count on no rate hikes in April or June. Beyond that, if the economy is booming, count on rate hikes, but this economy is far from booming, so count on no rate hikes anytime soon. By the way, the Gorilla is still wondering what they had for lunch at the “Economic Club of New York” where Yellen spoke.
We continue to see the “good, but not great” economic numbers, as March’s Institute of Supply Management (ISM) figure on Friday came in at 51.8. It topped estimates of 51.0 and February’s 49.5. Anything above 50.0 signals growth in manufacturing, but we are still only slightly above that 50.0 level. Consumer Confidence for March was 91.0, which matched what economists had expected, but it was up from February’s 90.0. Once again, it was good news but not all that great of economic news, and it is what we continue to witness on the economic front.
The ECB and the Fed can keep the game going, but ultimately earnings matter. Earnings season begins next week, and the vibe is not all that positive. Analysts have been lowering estimates for weeks, so expectations are way down. We have seen four straight quarters of earnings declines, and this is the “Elephant in the Room” that no one seems to be noticing. If a company beats lowered expectations, then no one is all that worried, but the fact remains that earnings are deteriorating. To quote the English nursery rhyme of Humpty Dumpty, “all the kings horses and all the king’s men” (central banks) might not be able to put Humpty together again.
Earnings season will be telling, so be ready for anything. The 10% correction in January and February was a sign of something, but the bounce we have seen has put that “something” on the back shelf. The great Warren Buffett said that “only when the tide goes out do you discover who’s been swimming naked,” and that could easily apply to this upcoming earnings season. Stocks are up a lot thanks to a lot of support from the Fed, but earnings are earnings, and they are still very important even if they are hardly mentioned anymore. Nonetheless, it should be an interesting earnings season.
As for Fed rate hikes, it looks as though they are off the table, especially since a single 25-basis point hike in December brought on a 10% decline in the stock market (the S&P 500). The first rate hike in NINE years is not to blame completely, but that is what happened. The Fed originally hinted at four rate hikes in 2016, but it has backpedaled to hint at just two rate hikes in 2016. If the stock market lost its marbles after one rate hike of a quarter point off zero, we can only imagine what one or two more hikes might do with regard to the stock market.
Presidential politics remain as crazy as anyone could ever have predicted, but oddly enough, the stranger it gets, the better the stock market seems to perform. Both parties seem angry and divided even among themselves, but it is somewhat reassuring that investors do not seem to care that much at all. Neither party talks about the economy or Wall Street, so maybe that is a bullish sign for the stock market. Who knows?
That said, we are off to a new quarter for the stock market, and as long as the Fed remains dovish, we could see this bounce-back rally continue. College hoops and the Final Four are on the docket, so that should provide some fun relief from a volatile stock market that has suddenly become calm and cool. The Gorilla wishes each and all a relaxing weekend. Spring is here, and it is a good time to start planting in the yard. We will be back in action on Monday, so again, a great weekend to all!
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