State of the Stock Market Analysis for the Week Ending March 19th, 2017 (Fairly Quiet Week on Wall Street 3-19-17)
The week had begun with great expectations that we would get a catalyst or two that would send the stock market to new, breakout highs or a long-awaited selloff. The buzz surrounding Janet Yellen and the Fed guaranteed a rate hike, but the thought was that stocks would make a move. We had a solid rally on Wednesday following the Fed’s announcement, but Thursday and Friday saw more of that low-key, “wait and see” mentality that left the major indices flat for the week. The Nasdaq did touch an all-time high, but for the week, the Dow was up 0.1%, the Nasdaq was up 0.7%, and the S&P 500 rose a modest 0.2%. We are still hovering near all-time highs for the majors, so that was the good news for a fairly quiet week on Wall Street.
So what was the stock market waiting for that could have sent things in motion? The Trump address to Congress two weeks ago had sent the major indices to all-time highs, but then the debates of the Russians, the Obama “wire-tapping” of Trump Tower, the Health Care debate, and a multitude of other political issues took center stage. All of the talk about deregulation, tax cuts, and job creation took a back seat, which seems to have left investors scratching their collective heads. The United States government and its policies do not turn on a dime, and that is the strange lesson we learned over the past week or two. President Trump even expressed his frustrations when he said, “I guess I am a politician now.”
Many critics of Congress say that it is focusing on health care “reform” right now, and that focus along with wire-tapping and the Russians involvement in the past election are stealing some of the momentum that recently sent the stock market to new highs. Thoughts that we would see quick reforms like tax cuts, deregulation policies, and job creation legislation might end up taking more time than we thought. That could explain why the stock market has stalled out near its recent all-time highs. We will have to “wait and see” if this “wait and see” mood drags on toward summer, but it is clear that big changes from Washington will likely be a slow process.
As for the Federal Reserve, the atmosphere on Planet Janet was calm, cool, and collected this week. The Fed raised rates and strongly hinted at two more rate hikes by the end of 2017. Some Fed watchers chimed in that multiple rate hikes could be on the way in 2018 as well, but we can rest assured that the Fed will remain extremely cautious on these planned future rate hikes. Slow and steady seems to be the goal. Thus we will have to get used to a more quiet Fed that wants to “normalize” rates back to higher levels without causing a meltdown in the stock market or “rocking the apple cart” of an economy that is looking very solid.
We did get some great economic news on Friday, as the Index of Leading Economic Indicators (LEI) rose 0.6% in February, and that marked the third-straight month of rising 0.6%. That is the best showing in 10 years, and it bodes well for the economy since the LEI is a forward-looking index. In addition, we saw the preliminary University of Michigan Consumer Sentiment number come in at 97.6 versus February’s 96.3. Estimates were for 98.0, so this shows that sentiment among consumers remains strong. These were encouraging reports as we headed into the weekend, so let’s hope we continue to see this type of economic news in the coming months.
One “red flag” about the recent market strength came from none other than the recent Snap (SNAP) IPO, the company that brings us SnapChat. It is a red-hot company with the millennials and teenagers, and it had a red-hot offering that priced at $17. It soared as high as $29.44, but has cratered and closed Friday at $19.54. That is a big drawdown from its high, and some market sages are saying that it reminds them of the final months of the dot.com bubble of 1999-2000. When IPOs become too hot, it is not a good sign for the broader market. The Gorilla is not on SnapChat yet, but he promises to test it out and to figure out why the young kids like it so much or how it will ever make money.
That said, we are in the heart of March Madness and the big college tournament, which should make for an exciting weekend for college hoops. There is no clear favorite, and that is apparently why the betting levels are up this year. The Gorilla read that pools and gambling are expected to be $10.4 billion nationwide this year, up about a billion from last year. Technically, work pools and bets with your friends are “illegal,” but those pools and bets are still a lot of fun. Good luck in your pools, and enjoy the weekend as winter gives way to spring!
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