State of the Stock Market Analysis for the Week Ending August 14th, 2016 (Bulls Let Down With The Week’s Outcome 8-14-16) All You Need Is Jobs

Bulls were hoping for a blockbuster upside win yesterday that would have closed us out at all-time highs for the week, but that was not to be the case. Retail sales for July came in flat; below the 0.4% increase economists had expected and below June’s 0.8% increase. The University of Michigan Consumer sentiment number was also lackluster, with it coming in at 90.4 versus the expected 91.5; slightly above the previous month’s 90.0 level. This could explain why buyers stayed on the sidelines to close out the week on a mixed and flat note.

It was still not all that bad of a week, though, as the Dow rose 0.2%, the Nasdaq gained 2.3% while the S&P was essentially flat. The stock market is at all-time highs, and it is searching for a catalyst or two to justify more upside gains. The problem is that catalysts are in short supply right now, and just when we think we will see one, it simply does not appear. It is almost like the stock market is in a dark park playing Pokemon Go, and it just seems unable to find that elusive Pokemon bull.

That is not that worrisome, though, because the broader stock market might be WANTING to see more bullishness, but sometimes a gradual lift is healthier than a blow-off top. No one is talking “hot stocks” with their friends at work or at cocktail parties, so that might be a plus. Slow and steady often wins the race, so these gradual moves higher might signal that the stock market is building a high-level base from which to grow in the months ahead. We shall see, but a Friday rally to new highs would have been much more preferable to the bullish camp.

History does rear its ugly head, though, and for anyone that recalls August of 1987, the stock market peaked in that month, and within two months we experienced the October Crash. Back then, it was not one event that set in motion a crash, but a series of events like violence in the Middle East and worries about Fed rate hikes that combined to suddenly take away investor confidence. We are in a very dissimilar environment today, but it is just a historical reference to keep in mind as we head toward the September-October time of year.

A rate hike from the Fed in September seems very unlikely right now, which is helping maintain investor confidence levels. The absolute last thing the Fed would want to do is rattle financial markets with a “surprise” rate hike in September even if the “data” that it claims to follow would give a “thumbs up.” Let’s face it, one or two good jobs reports against the backdrop of near 1% GDP growth is not “data-driven” enough to justify a rate hike anytime soon.

So the conundrum for investors is that stocks are at all-time highs, economic data is mixed at best, and we are all wondering if the bull run upward can continue. Earnings were good but not great this season, so we are also wondering what might drive stocks to higher highs. Throw into this mix a minuscule quarter-point rate hike in September, and it seems as though another 10% market pullback could maybe happen in an instant. That is a prospect that the Fed will want to avoid at all costs.

The major indices are still hovering near all-time highs, though, and that is a GREAT way to head into the weekend. The U.S. economy seems to run better than it gets credit for in terms of “data.” As Warren Buffet has said in the past, “Mister Market” often sees things that the rest of us don’t, so maybe this recent bullish rise is the stock market saying that our economy is still alive and kicking. We shall see. That said, the Gorilla wishes each and all a wonderful August weekend, and we will be back in action on Monday!

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