State of the Stock Market Analysis for the Week Ending on July 8th, 2018 Bulls Close Out Week With A Win 7-8-18)

All You Need Is Jobs

Bulls closed out Friday with a solid win, which followed a strong jobs report that showed 213,000 new jobs. Economists were looking for 200,000 new non-farm jobs, and while the 213,000 for June was down from May’s 244,000, June’s number was decent. So for the week, the Dow rose 0.8%, 2.4% for the Nasdaq and 1.5% for the S&P 500.

We did see a double-dose of what is looking more and more like a trade war. The U.S. lobbed a big bunch of tariffs at China, and China responded immediately with their own round of tariffs. The amount of companies and industries was large, and concern among many bulls is that the volleying back and forth could get intense.

Hedge fund kingpin Ray Dalio said, “the trade war with China has begun.” The U.S. levied tariffs of $34 billion, and China responded with tariffs on 545 U.S. goods. One group hit particularly hard were soybean farmers, who China zapped with a 25% tariff. Some farmers said that sort of hike could put their farms out of business if the trade war drags on too long or intensifies.

Also hit hard will be beef and pork producers, mainly because that industry has so many farms nationwide that barely scrape by each year. Tariffs are difficult, and while they have always been around, there has never been tariffs of this scale. The Smoot-Hawley Tariff of 1930 probably helped make the Great Depression last much longer than it would have.

On a different note, bulls have been pleased to see the small-cap Russell 2000 holding up so well. It closed Friday at 1,694, which puts it just about 13 points from an all-time high. This tech-heavy index, like the Nasdaq, has been a good place to be of late. Apparently, small caps are not as dependent on global trade, so the Russell might be a good spot if trade wars increase in magnitude.

Looking ahead, we have President Trump meeting with Vladimir Putin on July 16th in Helsinki, Finland. It should be interesting to see if they can make some progress between the two nations. Apparently, Trump is planning to attend the finals of the World Cup Soccer Match before their official “state” meeting. That should help the two get to know each other better, so we will see what happens.

Earnings season kicks off in earnest this week, and the consensus among analysts and strategists is that it should be a good one. The economic backdrop has been strong, and that should translate into a good quarter. That would be fine with the bulls, so we will see what happens. That said, the Gorilla wishes each and all a relaxing weekend. We will be back in action on Monday!

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