State of the Stock Market Analysis for the Week Ending on December 10, 2017 (Calm Close to the Week Awaiting Santa Claus Rally 12-10-17)All You Need Is Jobs

For all of the action on Wall Street this week, the overall market was fairly calm. The week ended with the Dow and the S&P hitting all-time highs and gaining about 0.4% each for the week. The Nasdaq fell 0.1%, as the rotation out of some of the tech high-fliers continued. Friday’s positive close was a plus for the bulls, and we are waiting for that Santa Claus Rally to take flight in the days and weeks ahead. Santa has been on hold so far this month, but given the economic picture and the Federal Reserve meeting next week, the odds favor a year-end rally that will give way to a Happy New Year.

What had investors in a good mood on Friday was the better-than-expected government jobs report that showed 228,000 new jobs created in November. The number topped economist’s expectations of 200,000, and while it was down from October’s revised 244,000, it was still a solid enough number to help keep investors in a good mood. Consumer sentiment for December came in at 96.8, which was down from expectations of 99.0 and the previous 98.5. Consumers are still hanging tough, though, and the pullback in sentiment might not be all that negative for the economy and the broader stock market.

We have the Federal Reserve meeting next week, and it will be interesting to see what Janet Yellen will have to say in her final remarks. A quarter-point rate hike seems a done deal, but what Janet says will be important. Bulls are hoping that she gives a very positive endorsement to Jerome Powell, the next Fed Head, which would likely make for a smooth transition. Powell is not a “traditional” academic, but he seems to be a good choice for the next head of the Federal Reserve. A “thumbs up” from Yellen would make for a good start to his tenure that is set to begin in February. Best of luck to Mr. Powell.

As for the stock market, we are seeing some “big rotation” taking place as large money managers and institutions prepare for the end of the year. Big profits are being locked in, especially among the big-cap techs (FANGs), and that has the broader stock market in a bit of a flux. Money is flowing into some of the year’s laggards, which is a healthy sign for stocks. The strange thing about this robust year is how it never really turned into a wild-eyed rise in equities. It has been a slow and steady rise all year, without any signs of “irrational exuberance” at all. (Alan Greenspan used that term in the late 1990s, and it does not apply to our current upswing at all.)

Greenspan did comment on Bitcoin last week, though, and he re-used his timely quote. Futures contracts for Bitcoin are set to kick in this weekend, so we will see what happens. Bitcoin is going mainstream, and some market strategists are saying it feels a lot like the boom of 1999-2000. (Keep in mind that there has been no real way to “short” bitcoin until now.) With big institutions stepping into the game it will be interesting, to say the least, but it will be a show to see in the next week or so. Bitcoin is apparently easy to buy, but hard to sell, and that is the big story that will unfold in the weeks ahead. Bubbles are bubbles, and parabolic price rises in anything often do not end well. When you “double down” in Vegas, the dealer always says “good luck!”

As for the stock market, we are in a good spot. The economy is strong, earnings are relatively good, housing is vibrant, and consumers are in a positive mood. We should see this optimism carry the stock market higher into the New Year, so be ready for some additional upside gains. It is a great time of year for stocks historically, so bulls should just sit back and enjoy the ride. That said, the Gorilla wishes each and all a relaxing December weekend. We will be back in action on Monday, so stay tuned to what will likely be an interesting month!

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