Despite hurricane fallout, terror attacks, another North Korean missile launch, and general global nervousness, the stock market once again edged toward all-time highs this past week. It did so calmly and quietly with little fanfare, and for the week the Dow was up 2.2%, the Nasdaq was up 1.4% and the S&P 500 gained 1.5%. It was a great week for the bullish camp, and it occurred without that much earnings or economic news. Bulls all know that calm and quiet rallies often have legs, so that has most of us in a positive mood as we head toward the last half of September.
The political winds are, as usual, blowing in Washington DC, as the Trump Administration is appearing more focused. Tax cut legislation took a back seat to immigration issues this week, but bulls are hoping for some sort of “tax reform” sooner rather than later. If there could be some kind of “grand deal” done quickly on a tax reform bill, we could see the stock market react well. With all of the chatter about this bill, it does seem as though both individual and corporate taxes are fairly high and could be trimmed fairly and smartly.
We get to hear from Janet Yellen and the Federal Reserve next Wednesday, and while a rate hike might not be in the cards, we will get some valuable insight into the Fed’s outlook for the rest of the year. This would be what the Fed sees for rate hikes, as well as its outlook on “shrinking” its massive balance sheet. Investors are in such a good mood that the Fed will likely remain tame, and many strategists have already said that the only thing they can see derailing the stock market right now would be higher interest rates.
These thoughts came from several of the big elephants at the Delivering Alpha Conference, and you can be sure that Janet Yellen and the Fed were listening. Some strategists at that conference said that the Fed is perpetuating more of a “bond bubble” than a “stock market bubble,” so either way, it should make it very interesting to hear what the Fed Heads have to say next week. Whether it is bond or stocks, however, neither one responds well to rising interest rates.
Interest rate watchers noted that the yield on the 10-year U.S. Treasury bounced back this week to 2.20%, and the recent worry was that capital was seeking safety and driving rates too low. The rise in Treasury yields and the backing off of the Volatility Index (VIX) signals a renewed confidence in the financial markets, and that is a bullish signal as we head forward. With rates still so low globally, stocks continue to look attractive. There is not a “euphoric” run into global stock markets, but capital continues to gravitate toward equities.
The S&P 500’s close at 2,500 Friday marks an all-time high that few could have imagined when it hit its post-financial meltdown low in March of 2009 at 666. We are not seeing many signs of “irrational exuberance,” but it is good to keep in mind that this is an aging bull market. We will see what happens. The Gorilla wishes each and all a relaxing September weekend, and we will be back in action on Monday. Fall is on the way, so have a restful and enjoyable weekend!
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