State of the Stock Market Analysis for the Week Ending on August 5th, 2018 Apple’s Historic Milestone Leaves Investors Optimistic 8-5-18)

All You Need Is Jobs

The big news of the week was Apple (AAPL) crossing the trillion dollar mark, and that had investors in a good mood. The company may be worth a lot, but oddly enough, it still has a P/E ratio of around 19 and a dividend yield of 2.9%. It may be a growth stock, but with these numbers, it is relatively inexpensive. Apple’s move into the “cloud” space seems to be working, and the company is always coming out with new products that will keep customers buying new phones and devices.

The upbeat news for the week was that Jerome Powell and the Fed left rates unchanged, which helped keep investors in an upbeat mood. The yield on the 10-year U.S. Treasury closed out the week at 2.95%, and that was reassuring. There had been some “bond gurus” saying that long rates would soar above 3%, but that has not occurred. This might be helping the stock market hold up so well. Earnings have been mixed, but home runs from the likes of Apple are helping keep investor sentiment positive.

The government jobs report for July, which was released on Friday, showed 157,000 new jobs, and while that was below expectations of 195,000, it was still not that bad of a number. It was down from June’s 248,000, but there are seasonal swings that often occur in the summer months. The unemployment rate dipped back down to 3.9% from June’s 4.0%, which was another plus.

The odds for a Fed rate hike in September have increased, but with the stock market holding up so well, a couple rate hikes before the end of the year appear likely. Longer-term rates remain low, so the Federal Reserve has no reason to feel under pressure to raise shorter-term rates. This is a plus for the stock market, and as long as the Fed can remain calm and cool on interest rates, the stock market will hold up well, head possibly higher, and remain out of a panic mode through the rest of 2018.

There is a lot of talk about how higher interest rates from the Federal Reserve will help the regional banks and the overall banking system, so maybe the Fed will keep the rate hikes gradual without spooking the broader financial market. Jerome Powell and his crew seem to be prudent, and it has been interesting to see the Fed play its cards closely. There have been fewer speeches, which might be another plus for a stock market that is doing well without a lot of prognosticators appearing on CNBC every day.

Washington DC politics are still in play, but once again, the stock market seems to be ignoring all of that drama. We have a November election on the way, but the stock market is not responding in a negative way at all. Earnings season continues to look good, but it has also not been all that great. Apple has set a great tone for the rest of earnings season, so we will see what plays out next week. That said, the Gorilla wishes each and all a relaxing August weekend, and we will be back in action on Monday. Have a great weekend!

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