State of the Stock Market Analysis for the Week Ending on May 5th, 2018 Apple Helps Stock Market Close Out Week Fairly Strong 5-6-18)

All You Need Is Jobs

It is always fun to learn what Warren Buffett is buying. He apparently bought 75 million shares of Apple (AAPL) during the first quarter, and for a man that initially would not buy Microsoft (MSFT) 20 years ago, he has become kind of a “tech” guy. Apple had blowout earnings this past week, and it surged to a fresh, all-time high. Given the numbers we saw this week, Apple is still a relatively “cheap” stock, and it is clearly hitting on all cylinders. It is a mega-cap stock, and it helped the stock market close out the week fairly strong.

The stock market opened lower on Friday, but the major indices managed to close out the week strongly with a big rally on Friday. For the week, the Dow and the S&P 500 lost 0.2% each, but the Nasdaq notched a 1.5% win. Friday’s action alone saw the Dow gain 1.4%, the Nasdaq rise 1.7%, and the S&P 500 lift by 1.3%. It is always a great way to end a week with the major indices launching into a big rally, so this puts investors in a good mood as we head toward the rest of May.

Friday’s government jobs report showed that there 164,000 new jobs were created in April, and while that was below expectations of 184,000, it did top the 135,000 that we saw in the March report. The good news was that the unemployment rate fell to 3.9%, and that was down from the previous 4.1% and expectations of 4.0%. The unemployment rate is the lowest level we have seen in 18 years, and it bodes well for workers and the broader economy. These numbers will likely help boost consumer confidence for the foreseeable future.

The interesting news of the week was the lack of a Federal Reserve rate hike. The conventional wisdom was that a rate hike was in the cards, but Jerome Powell and the Fed Heads decided to wait. The recent market “correction” probably played a big part of the Fed’s decision, and while the Fed prides itself in not following the stock market, it was probably a good decision to not raise interest rates with a stock market that was looking shaky this past week. Hats off to Jerome Powell, who seems to be doing a great job in his new position as Chief Fed Head.

Fed watchers are still saying that the Fed will raise rates at least three more times this year, and as nervous as that might make investors, many economists say that higher rates will be a positive, particularly for the many regional banks and insurance companies. Traditional savers who own CDs and money market accounts will also benefit as well. Those savings accounts that have earned near-zero interest rates for years will benefit as well. The Fed policy of low rates following the 2008-09 financial collapse was supposed to be temporary, so the “normalization” of interest rates has taken quite a while.

With the stock market seemingly coming back, it should be able to handle any additional rate hikes this year. Earnings season has been solid, although there have been a few bumps along the way. There has been some weakness in traditional consumer stocks along the way, though, and that has weighed on the broader stock market. These are normal pullbacks in an aging bull market. Bulls are hoping that the recent declines have run their course, which could pave the way for the stock market to resume its upward trajectory.

Politics in DC are as strange as ever, but the stock market continues to hold up well as it sort of ignores the day-to-day machinations of all of the madness. We have a big election in November on the way, so that should make for an interesting summer. Divided government is historically good for the stock market, and most of us would agree that we have a heavily divided government. We have had a “correction,” in the stock market, and with Friday’s strong close, it might finally be behind us as we head into May. That said, the Gorilla wishes each and all a relaxing weekend, and we will be back in action on Monday!

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