It was a strange finish to a strange week on Wall Street, as the stock market finished strong on Friday following Thursday’s moonshot rally. The week had begun flat and quiet; the stock market remained so through Wednesday. But out of nowhere, things changed, and we were off to the races on Thursday and Friday. Comments from the ECB’s Mario Draghi on Thursday were followed up by interest rate cuts in China, and the thought of new QE in Europe and lower rates in China set the tone. Blowout earnings from tech giants in the U.S. were music to the ears of the bullish crowd, and stocks closed out the week strong.
The money spigot seems to be back on globally, and the big question now is whether the Federal Reserve will join the party when it meets next week. The big worry had been the mixed earnings and economic reports we have seen all month, but October is shaping up to be an October to remember. For the week, the Dow gained 2.5%, the Nasdaq rose 3.0%, and the S&P 500 gained 2.1%. Friday’s rally put the S&P 500 back into positive territory for the year, and it was a great way to see us escaping the ghosts and ghouls of Octobers of the past.
What was most astounding, though, were the earnings news and stock gains of “Big Tech.” When was the last time we saw Microsoft (MSFT) gain 10% in a day? In addition to Microsoft, Amazon (AMZN) rose 6.2% and Google (GOOG) was up 7.7%. The other Google, or as they call it now “Alphabet” (GOOGL) rose 5.6%. The Google name change and restructuring is still sort of confusing, but the company is still on fire no matter what you might call it, and it joined the big tech dogs in driving the Nasdaq up 3% for the week. Bulls are thrilled to see the Nasdaq solidly back above the 5,000 level, and the next stop could be the July all-time high of 5,231.
But wait a minute, were we not just mired in mixed news, bad earnings and indecision? Were we not just arguing over whether the Fed would hike rates and torpedo the stock market? We have had a slew of bad numbers from the likes of IBM (IBM) and Caterpillar (CAT), as well as many other “old economy” stocks, and it seemed as though this current bull market was about to be run out to pasture. But even Facebook (FB) bucked the old economy trend and rose 2.5%, to close above $100 per share at an all-time high. Hmm, the last time the “new economy” versus “old economy” theme was big was in 1999 and 2000.
But can you drive an economy with hot, newer names that seem to be doing extremely well? There was a time back in 1998 when Amazon was a red-hot startup, and Wall Street sort of hated it. It was blasted as a “book company” that had no profits and sold books at a loss. Amazon was one of the first legitimate dot.coms, and it caught a lot of negative analysis as a “fly by night” that would soon be gone. Seventeen years later, Amazon has surpassed Wal-Mart (WMT) in market cap, and that is amazing. The Gorilla has heard quite a few shoppers agree that shopping on Amazon is a lot more pleasant and easier than shopping at Wal-Mart!
The robust gains we saw at these “new economy” giants have produced big gains for their founding members, and it sort of boggles the mind to realize that Amazon’s Jeff Bezos saw his wealth increase by $2.9 billion on Friday alone. Google’s Larry Page and Sergey Brin added about $2.5 billion on Friday, while Bill Gates and Facebook’s Mark Zuckerberg saw their net worth rise by about $1 billion each. Not a bad Friday for a group of guys who have created amazing companies that look as though they are here to stay. Take a look at Microsoft’s long-term chart going back to when it peaked (spilt-adjusted) at around $60 per share in late-1999! Wow.
Housing numbers were solid this week, which also had consumers and investors feeling optimistic. Many housing markets that were devastated following the 2008 bursting of the housing bubble are frothing again, and while that feels great, it might be a warning sign. Interest rates are still at extremely low levels, so that is a plus for housing, but what happens when rates rise (or are raised)? That is the big question, and it will be interesting to hear what the Fed has to say when it meets next week. The ECB and China committed this week to more QE and lower rates, so might our own Fed do the same?
The other part of the equation is that as fun as Thursday and Friday were for the bulls, we are still stuck with an S&P 500 that is pretty much flat for the year. It was another winning week for the stock market, though, and we are almost through October. The Fed COULD sneak a rate hike through next week, but it seems unlikely. We all know that the Fed loves a rising stock market, and it seems very likely that it could join the party and do NOTHING to get in the way of the renewed strength of an aging bull market that seems to have shrugged off the 10% decline it saw through late August.
That said, the Gorilla wishes each and all a wonderful and relaxing fall weekend. Institutions and hedge funds have a big incentive to push their October fiscal year-ends to the upside, so stay tuned for what should be a very interesting week for the stock market. By the way, although the Gorilla has received a few good ideas, he is still accepting costume suggestions for his Halloween celebration. Again, have a great weekend, and we will be back in action on Monday!
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