State of the Stock Market Analysis for the Week Ending on May 20th, 2018 After Long Week, Major Indices End Not That Bad 5-20-18)

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It was a tough week for the stock market, but it turned out fairly well. We saw some solid economic numbers, and after a long week, the major indices ended with the Dow down 0.5%, the Nasdaq down by 0.7%, and the S&P 500 down by about 0.5%. That is not that bad of a week for the major indices, but bulls were hoping for a greater gain for what was a challenging week for a stock market that is looking for a footing to head higher as we head toward the summer months. A Summer Rally would be great, so stay tuned

The big worry is the yield on the 10-year U.S. Treasury, which popped up to 3.11% on Friday before pulling back to a “non-volatile” 3.07%. That kept the bond market calm, but it was still an elevated level that kept the stock market in a “wait and see” mode. The worry for stocks is that if long-term rates keep rising, the Federal Reserve will be forced to raise rates sooner rather than later. That could upset the stock market, and that is what has investors concerned right now.

Higher interest rates might not be that bad, though, according to many economists. They seem to say that higher rates would be great for smaller, regional banks and insurance companies, so we will see what happens. The low rates for the past ten years somehow helped the economy, but it is very interesting to see the interest rate scene return to what the Fed Heads call “normal.” Savers in traditional banks might be thrilled with higher CD rates so we will see what happens.

As for the broader stock market, we have had a tough “correction,” but the broader stock market looks ready to run higher. The Russell 2000 hit a new all-time high this week, and that is a very bullish sign for the stock market. When stock market has the small caps acting well, it is often a very good sign for the broader market. Bulls were smiling to see the small caps rallying this past week, so we will continue to monitor this sector in the weeks ahead and into the rest of the year.

Summer is on the way, and stocks historically go into a “sleepy” mode, but once again, there is never a dull moment on Wall Street. The Gorilla wishes each and all a relaxing May weekend. We will be back in action on Monday, so stay tuned. This is a very interesting time with regard to Wall Street and global financial markets, and that promises to be fun as we head toward Memorial Day Weekend!

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