It was a tough week for investors, and most bulls were happy to see the week come to an end. The government jobs report for August was supposed to answer some questions, but the lackluster 173,000 jobs we saw was disappointing to say the least. It fell short of the 220,000 that analysts were expecting and it was significantly lower than July’s revised figure of 245,000, so it was not exactly the booming number the Federal Reserve had hoped to see. Some Fed watchers are saying that the number was still strong enough to back a Fed rate hike in mid-September, and maybe that was why investors were in such a down mood on Friday.
All three of the major indices suffered big weekly losses, with the Dow down 3.3%, the Nasdaq off 3.0% and the S&P 500 down by 3.4%. The down week marked the end of the summer vacation season, so we will have traders and professionals back in action on Tuesday in a big way. We are heading into the historically volatile September/October time of year, and with the broader stock market having had a tough August, it will be interesting to see what sort of sentiment surfaces on Tuesday. Bulls are never thrilled to close out a Friday on a negative note, and that has many investors feeling a little nervous about next week.
From a technical standpoint, the 1,921 close for the S&P 500 puts it below both its 50-day moving average of 2,038 and below its 200-day moving average of 2,050. We all have heard of the ominous-sounding technical setup called the “Death Cross,” where the 50-day moving average crosses below the 200-day moving average, and seeing a big index like the S&P 500 do that is one more thing the bullish camp has to worry about next week. An early week rally could alleviate this technical formation, so you can bet that the bulls will be hoping for some kind comments from a Fed Head or two to clear the negative air.
The problem for the Federal Reserve is that it has been telegraphing heavily for a rate hike. Some critics of the Fed have said that it should have hiked rates much earlier this year, and that it has painted itself into a bit of a corner. The Fed had no idea that the Chinese Shanghai Index would fall 40% since June, and the Fed also did not anticipate the roughly 3% devaluation of the yuan. These events helped set in motion the broader market decline we are currently experiencing, which makes it all the more difficult for the Fed to make a rate move.
Friday’s jobs report was supposed to be the “icing on the cake” for a rate hike, but it was simply not that great of a number. Economic news has been good lately, and the numbers seemed to be pointing toward a green light for the Fed to raise rates. The weak jobs number could cause the Fed to hold off on a rate hike, but then again, the weak jobs number also suggests that maybe the economy really is NOT all that strong. Investors seemed to think this thought on Friday, as stocks fell to price in the idea of a rate hike OR a weakening economy. Either scenario is worrisome, and it possibly explains the selling we saw to close out the week.
One stock to keep an eye on is none other than Apple (AAPL), since its massive market cap and its prominence in all three major indices sort makes it “the market.” Apple closed Friday at $109.27 and that puts it quite a bit below its recent all-time high of $134.54. It is below both its 50-day moving average of $117.28 and its 200-day moving average of $117.92. Apple was a primary driver of this six-plus-year-old bull market, so it is a stock worth keeping on our radars right now. It used to be said that “as GM goes, so goes the nation,” and in a way, it is almost as if “as Apple goes, so goes the stock market” (or maybe even the nation).
So, what does the rest of September have up its sleeve for the stock market? We shall soon see. Tuesday’s opening bell will be kind of like a kickoff for the “real season,” since August may have been a bit of a warmup. Institutions and investors will be back in action in a big way, so we should get a clear indication of global sentiment early on in this upcoming week. China, Greece, oil prices and that possible interest rate hike will be front and center, as will any comments or hints from the Federal Reserve. It should be an interesting week to say the least!
That said, the Gorilla wishes each and all a relaxing Labor Day Weekend. With the S&P 500 down nearly 7% for the year, the bulls are looking for an optimistic bounce. The problem for next week is finding that sort of optimism amid global financial markets that are showing a lot of stress and strain. We do have a three-day weekend, though, and maybe global markets will regain their composure enough to see the glass as half-full instead of half-empty. Again, have a great weekend, and we will be back in action on Tuesday!
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