Friday’s late-session lift was a great way to head into the Memorial Day Weekend. It topped off a very encouraging week for a stock market that has confidence levels rising. All of the concerns about a June rate hike by the Federal Reserve took a back seat this past week, and stocks headed higher. For the week, the Dow was up 2.1%, the Nasdaq gained 3.3%, and the S&P 500 rose 2.1%. This left the S&P 500 at 2,099, and bulls were pleased to see the elusive 2,100 level back in play. This is a very positive move that could lead to more upside next week.
The catalyst behind Friday’s lift was an upward revision in first quarter GDP that showed a growth rate of 0.8% versus the initial 0.5% rise. Economists had expected a 0.9% growth rate, but the 0.8% was solid enough to lift the stock market for a positive Friday close. A sub-1% growth rate is not exactly the sign of a booming economy, but at least we continue to see positive growth and an upgraded growth rate. The stock market might have risen more on the GDP number, but it makes the hints of a Federal Reserve rate hike in June all the more likely.
Consumer confidence for May came in at 94.7, which was slightly below the 95.0 that analysts had expected. It was also slightly below the previous reading of 95.8. As we have seen, we keep getting economic news that is good, but not all that great. Janet Yellen and the various “Fed Heads” keep hinting at a June rate hike, and the “data” we are seeing continues to support such a move. The stock market’s upside performance signals that investors are ready for another rate hike, so maybe we will get a June rate hike and maybe investors will take that hike in stride, and the stock market will continue to move higher.
The Fed has promised to remain “data driven,” so we will continue to monitor the economic numbers that will influence the Fed concerning its June meeting. Many economists are saying that the zero interest rate policies (ZIRP) and negative interest rate policies (NIRP) might be hurting the global economy. Thus, rate hikes might actually be a plus. Seeing a 0.8% GDP growth rate for the first quarter suggests that something is not working, so maybe we are in a new era where rate hikes help the economy and the stock market. Stay tuned as we see what the Fed does in June.
The political picture is up for grabs, and it is anyone’s guess what we see in the upcoming political conventions this summer. Politics rarely influence the stock market, and stocks seem to do well when Washington remains divided. The current divisive election picture could be why we are seeing the stock market rally, so maybe this is a plus as we head toward November. The strange development is that in addition to party divisions, we are seeing divisions within BOTH parties. It is a frustrating process, but somehow, the stock market is rallying just the same, and the bulls are hoping that we can see additional upside as we head toward summer.
Earnings season was disappointing, but we continue to see enough positives to keep the stock market drifting higher, and that is a plus. Oil is hovering near $50 per barrel, which is another positive signaling that global GDP is not slowing down at all. The housing market is still strong, and that is another positive showing that the U.S. economy is stronger than we thought. This past week’s rise in the stock market surprised most investors, so we head toward June with increased optimism and a market making a renewed run toward new highs. That said, the Gorilla wishes each and all a relaxing Memorial Day Weekend. We will be back in action on Tuesday, so enjoy this final May weekend!
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