Bulls were heading into the weekend needing a win, and that was exactly what happened Friday, as the employment report was impressive enough to get the bull market off the floor and take it higher. The 200-plus-point rally in the Dow was enough to get it back above the 17,000 level, and while the S&P 500 failed to make it back to 2,000, it was still an impressive finish to a tough week just the same. The key now is earnings season, which kicks off in earnest next week. And given this week’s strong finish, the bullish vibe is back, at least for the time being.
Setting the market on its upward trajectory Friday was that employment report, which showed 248,000 new jobs versus the 220,000 that economists had expected. This was exactly what the bulls needed to hear, and the positive number signified that the “real” economy might actually be alive and kicking. For the past six years, the stock market has rallied on weak jobs numbers because it meant that the Fed would wait, and wait, and wait to increase interest rates. Now that the employment picture is finally improving in a lasting way, confidence levels and the market are both showing signs of life.
The jobs numbers were not too hot nor were they all too cold, which was the big plus on Friday. The unemployment rate fell to 5.9% versus the expected 6.1%, and that again was a plus and a minus. The plus is that the number was down to its lowest level since 2008, but it also showed that many workers are opting out of the job market altogether. Again, this shows that job growth is there, but it also shows that job growth is a long, long way from leading to an overheating economy that might prompt the Fed to raise interest rates sooner rather than later. Investors seem to love “not too hot and not too cold,” which helped give us the Friday boost.
The recent economic numbers are pumping up the U.S. dollar, and that has a great short-term effect on the U.S. economy. It increases confidence, it makes it less expensive to buy foreign goods, and it means that the U.S. economy is strengthening. The downside is that it makes it tougher for U.S. global conglomerates to compete, which can ultimately affect profits for the biggest of the big U.S. companies that are so integral to stock market prices. The U.S. stock market is giving a big “thumbs up” right now, though, and as usual, we are seeing few complaints from the bullish camp.
Friday’s rally put back in play the “risk off” mentality that had accompanied the “risk on” plvay we have seen in the past couple of weeks. The worries of Ukraine, ISIS, the Middle East, Hong Kong, and Ebola took a back seat Friday, and it was refreshing to head into the weekend with the stock market acting like it did for most of 2014. One day does not guarantee a permanent reversal, though, so next week and the rest of October will pose some big challenges. There will be no big, mainstream media stories about stocks melting down in October, though, so that is another plus for the bullish case right now.
So, what could go right from here, and what could go wrong? What could go right would be a strong earnings season, continued job growth and no signs of inflation. What could go wrong would be escalating “global shocks,” a weak earnings season and somehow seeing an increase in inflationary pressures. So far, we have seen a unique blend of the two in the past year, and investors seem to like that “Goldilocks” scenario of a lukewarm economic environment. Friday’s rally signaled that October is on hold from becoming an old-fashioned October, which had the bulls smiling at the closing bell on Friday.
Bullishness is still in the air, but the past couple of weeks have reminded investors that the stock market “does not grow to the sky,” as the more “seasoned” investment crowd has heard numerous times throughout the years. Six-year bull markets have a way of building too much complacency, so a week or two of a soaring Volatility Index (VIX) and spiking fear levels are often healthy developments, particularly in an aging bull market. It was a great finish to a tough week, though, so hats off to the employment report and investor confidence.
That said, the Gorilla wishes each and all a wonderful first week of October. It was a huge plus to not be thinking about a “Friday Meltdown” or a potential “Black Monday,” so enjoy your family, friends, football and fall this weekend. October has a long way to go, but for the time being, the broader economy and market are both looking solid. Again, have a great weekend, and we will be back in action on Monday!
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