State of the Stock Market Analysis for the Week Ending on February 25, 2018 Bullish Close to Week, Could Lead to Bullish Close to Month 2-25-18)

All You Need Is Jobs

Bulls were hoping for a Friday lift, but what we saw was a rocking rally that on Friday alone, pushed the Dow up by 1.4%, the Nasdaq up 1.7%, and the S&P 500 up by 1.6%. Friday’s rally erased some of the damage done by that wild Wednesday selloff into the close that had bulls thinking we might be setting up for a re-test of the lows we saw a little more than two weeks ago. We ended the week on a bullish note, and for the week, the Dow gained 0.4%, the Nasdaq rose 1.4%, and the S&P lifted for a 1.6%. These are modest weekly gains, but the vibrant lift we saw on Friday (350 points for the Dow), has bulls feeling bullish as we close out February next Wednesday.

What seemed to allay fears for investors this week was seeing the yield on the 10-year U.S. Treasury finish at 2.87% on Friday. This was down from Wednesday’s late-day pop to 2.94%, which seemed to have caused last Wednesday’s meltdown in the stock market. Long rates eased, and that gave the “green light” for stocks to rally. Bulls are hoping that this new upward momentum will continue into next week. The Volatility Index (VIX) dropped back down to 16.49, which shows that calm and cool is returning to the stock market. This is a big plus for a stock market that was recently rattled by a VIX that touched the 50 level!

The Federal Reserve reported to Congress about the state of the economy and interest rates on Friday, and the general conclusion was that the Fed was ready to raise rates. It was, however, not quite sure about inflationary pressures. Likewise, the employment picture, according to the Fed is mixed. Employment is strong, but wage pressures are weak. This puts the Fed in a tough spot in that it does not want to raise rates too soon nor does it want to keep the economy from growing briskly and safely. The Fed does not want take away the “punch bowl,” but it also does not want to be behind the curve of keeping inflation in check.

New Chief Fed Head Jerome Powell will testify before Congress next week. Mr. Powell has kept a fairly low profile following Janet Yellen’s departure, and investors are looking forward to hearing his thoughts. It might be a bit stressful to be taking charge when employment is low, the economy is booming, and nothing seems to be going wrong. Yes, the stock market had a 10% correction, but it has quickly bounced back. It is sort of like being brought in as the new pitcher when your team is up by five runs in the bottom of the seventh inning. He is in charge now, so we will see what he has to say.

There is a lot of buoyant optimism in the market right now, particularly for technology. Amazon (AMZN) hit an all-time high on Friday as it closed at $1,500 per share, and yet even at this all-time high, analysts are raging about how great of a “buy” the stock is. Amazon has risen dramatically this year alone, and it makes up a huge percentage of the Nasdaq and the S&P 500. The worst thing for Amazon is if “the powers that be” decide to finally add it to the Dow Jones Industrial Average. That could indicate a “peak,” but who knows. The Dow people added Microsoft (MSFT) and Intel (INTC) as they peaked in late 1999, so we shall see what happens.

On a lighter note, it was amazing that 20-something Kylie Jenner (daughter of the former Bruce Jenner- now Kaitlyn- and Kris Kardashian), posted a negative tweet to her 24 million Twitter (TWTR) followers this past week about how she did not like the Snapchat (SNAP) platform change. Snapchat’s stock quickly fell by 6%, which amounted to a $1.3 billion loss in market cap. Not many seasoned tech market analysts have that sort of influence, but Kylie seems to have that sort of power with the click of an iPhone. Strange days indeed for the constantly evolving tech world. It moves quickly, and that is one of the parts that keeps the tech world on its toes.

It should be an interesting road ahead, and Wall Street and investors will be watching for upside wage pressures and long-term Treasury yields. Historically, when wage inflation takes hold, it is difficult to stop that sort of momentum, so that is why investors are concerned. That said, the Gorilla wishes each and all a wonderful weekend. We will be back in action on Monday!

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