This was a tough week for the stock market, as it never really found direction. Earnings disappointments have put a damper on what bulls thought would be a “green light” for the major indices to move back toward their all-time highs from early March. Disappointments have come this season from “big dogs” like Goldman Sachs (GS), Johnson & Johnson (JNJ), General Electric (GE) and Verizon (VZ), and when the big dogs are not in the game, the game comes to a halt. It was a positive week overall, though, as the Dow rose 0.5%, the Nasdaq gained 1.8%, and the S&P 500 added 0.9%.
The stock market has been in a bit of a funk since the all-time highs we witnessed in early March, but the good news is that this recent hesitation has occurred with the major indices still within striking distance of those all-time highs. The bad news is that the major indices are unable to find a reason to rise and break out to new highs. We have had some stellar housing numbers, but that alone has not been enough to get buyers back into the ball game. Weak earnings news has combined with enough “so-so” economic numbers to keep investors on the sidelines, which has made for a lot of frustration among the bulls.
The Trump Rally stalled out once Congress focused on health care reform, and that used up a lot of energy that could have gone toward Trump’s early promises of tax cuts and deregulation, as well as infrastructure spending. What did catch investors’ attention late this past week were comments from Treasury Secretary Steven Mnuchin saying that a tax cut proposal was on the fast track, and that such legislation and possible voting would not drag out late into the summer. Trump added comments on Friday saying that a “massive tax cut” was on the way, so maybe this will help reinvigorate a stock market that has been in a holding pattern for more than six weeks.
The past week saw a calming down of global “hot spot” issues, and quiet weeks like this are ultimately a plus for the stock market. The terrorist attack in Paris was the latest “wild card” in the global arena, though, and it could sway French voters toward conservative Marine Le Pen in the French election this weekend. We will see how that plays out, but other than that attack, it was a quiet week in terms of global tensions. North Korea even held off on any new missile “tests,” which was one more sign that global issues might not spin out of control anytime soon. Again, that should be a plus for the stock market as we head toward summer.
We did get the Fed’s “Beige Book” comments this week, and it looks as though the Fed still sees moderate growth and a solid employment picture. The Fed’s comments still made it clear that its rate hike proposals for 2017 are still in place. However, the Fed did say rate hikes would be gradual and subject to change if the economy were to stumble. This is a plus for the stock market because the Fed has made its goals very clear, and in a sense, it promised “no surprises” as we head deeper into 2017. The Consumer Price Index (CPI) has shown absolutely no inflation, and some economists were expressing concern that we might even be headed toward a deflationary environment.
The yield on the 10-year U.S. Treasury closed on Friday at 2.24% and remains in a downtrend. This is great for the housing market, but with the Fed raising rates, it raises the possibility of a flattening yield curve. A flattening yield curve is not a sign of a vibrant and growing economy, and some economists have suggested that it could be signaling the possibility of a recession. We will continue to monitor this development, as will the Federal Reserve, and we all know that the Fed would want to avoid “causing” a recession by raising interest rates too far and too fast for the rest of the year.
What would help the stock market right now would be more positive first quarter earnings news and more signs that the broader economy remains strong. Congress is back in action next week, so we will see what sort of agenda it has after its spring break. Embracing tax cuts and deregulation issues might reinvigorate the stock market, so we will see what happens. That said, the Gorilla wishes each and all a relaxing spring weekend. It’s time to start mowing lawns and planting plants, so again have a fun weekend. We will be back in action on Monday!
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