State of the Stock Market Analysis for the Week Ending April 17th, 2016 (The Keyword is Bubble 4-17-16) All You Need Is Jobs

The late-day Friday rally bulls were hoping for did not materialize, which was likely the result of a batch of mixed (and mostly negative) economic numbers that kept buyers on the sidelines. It was a decent week for the broader stock market, though, and the major indices booked weekly gains of 1.8% for the Dow, 1.8% for the Nasdaq and 1.6% for the S&P 500. The S&P 500 finished the week at 2,080, and it is still within striking distance of the elusive 2,100 level that has been a major resistance level, give or take, for more than a year. It was a decent week overall for stocks, and so far, earnings season is unfolding as good, but not all that great.

The price of oil fell by about 2.5% on Friday, and with crude hovering around $40 per barrel, the fears of an oil price meltdown are on hold. OPEC nations meet in Doha, Qatar on Sunday, and it will be interesting to see what the oil cartel has to say regarding production levels going forward. The predictions of $20 per barrel oil seem far-fetched right now, but then again, freezing or paring back production will likely be the main discussion when these big-producing countries meet on Sunday. The fall in oil prices has hurt the U.S. shale oil business dramatically, and it has even put a lot of pressure on banks that financed the shale oil boom in the U.S.

As for the economy in the U.S., we saw some disappointing numbers on Friday that likely led to the Friday malaise in the stock market. The University of Michigan’s Consumer Sentiment report for April came in at 89.7, and that was below the expected 92.0, as well as down from March’s 91.0. This showed that consumers are on the fence, and they are not all that confident about their own economic situation. The 10% decline in the S&P 500 we saw earlier this year has likely had some effect on consumers, but we have had a 10% or so bounce back, and consumers are still feeling a bit down. That is not a good sign.

In other economic news on Friday, we saw industrial production for March fall by 0.6%, which was worse than the 0.2% decline that economists had expected, and it equaled the 0.6% decline we saw for February. That might seem like a blip, but it was yet another negative blip that suggests that all is not well in the U.S. economy. New York’s Empire State Index of economic activity came in at 9.6, though, and that topped estimates of 3.0 and the previous month’s 0.6, so there was yet another bit of positive news that leaves the economic picture mixed and unclear. No wonder the stock market is unable to find its way up or down right now.

Not that Apple (AAPL) drives the economy, but with its massive market capitalization, it is sort of like the General Motors (GM) of the past. The saying that “as GM goes, so goes the nation” sort of applies to Apple. Apple was a lead dog during the bull market of the past seven years, but it closed at $109.85 on Friday, putting it quite a bit below its 52-week high of $134.54. News of declining iPhone sales and iPhone demand saw Apple stock fall by 2% on Friday alone, which helped weigh on all three of the major indices since Apple is such a big component of each one. However, the Gorilla is far from counting Apple out!

So the Fed will somehow get us out of this seemingly stagnant economy, right? Well, not so fast. There was a great interview on MarketWatch with Raghuram Rajan this week about his thoughts on central banks and zero or negative interest rates. He is a former professor at the University of Chicago, and he is back in India as the Governor of the Reserve Bank of India. His thought was that the massive interest rate cuts we saw following the 2008-09 meltdown inflated assets like stocks and real estate (the “wealth effect”), but the trick now is for the economies of the world to catch up and justify those inflated valuations.

Central banks may have avoided a “depression,” but the underlying economies of these nations, including the U.S., are not seeing enough economic growth to support the “wealth effect” in companies and assets that zero interest rate policies created. Rajan commented that while the “crisis” has passed, he thinks that zero or negative interest rates might be doing more harm than good right now. There are a lot of companies that should have been gone by now, but zero interest rate policies are keeping them alive. Rajah supports the Fed’s policy of “gradual” interest rate hikes, but he did mention that we are in a whole new world with regard to what central banks can or should do from this juncture.

Let’s just hope the Fed and other central banks know what they are doing, but as time goes by, it seems as though they have no idea what they are doing. Stocks are holding up relatively well, though, so that is a plus. Spring is here, and that is definitely a plus. The Gorilla wishes each and all a relaxing weekend, and we will be back in action on Monday. Itā€™s time to plant and work in the yard, so enjoy the weekend and enjoy a weekend away from the markets and the crazy Presidential race if you can make the time!

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