The buzz from Jackson Hole is that the global economy is good, but not great. Janet Yellen’s morning speech emphasized that global central banks did their jobs and performed as necessary following the 2008-2009 global meltdown. She is correct in this analysis, and in many ways, the central banks are to be credited for avoiding something worse like a Great Depression. We saw instead a Great Recession, and the growth bounce back has been somewhat lackluster.
It left us with another problem, and that was interest rates at their lowest level in decades. Some critics of this policy have said that even today, companies are buying back their own stocks at a massive rate rather than investing the capital in real assets for growth like machines, technology, and equipment. These critics think that the zero interest rate policy has disrupted traditional lending to smaller businesses who simply are unable to get loans for growth. The Fed and the ECB know that rates should be higher, but they just want to avoid rocking the equity apple cart.
When rates were cut to essentially zero, and the QE purchasing bonanza began eight years ago, it was supposed to be a “temporary fix” to lead us through troubled times. Temporary solutions from government and global banks tend to become “permanent,” and that is where the global central banks find themselves right now. That is also likely why Janet Yellen avoided talking too much about interest rates on Friday in Wyoming.
From a technical standpoint, the major indices are at a challenging juncture with the Dow above its 50-day moving average of 21,662 and the S&P 500 and the Nasdaq right at their 50-day moving averages of 2,445 and 6.267, respectively. The small-cap Russell 2000 closed up slightly at 1,377, which has it above its 200-day moving average of 1,362, but it is still below its 50-day moving average of 1,398. Small caps are important, so we will keep a close watch on them in the days and weeks ahead.
The fact that stocks have stalled out and not fallen is the big plus for bulls right now. Bulls are hoping that the tax cut legislation, infrastructure spending, and deregulation bills will regain traction in the weeks ahead. Washington DC (politics aside) continues to find other things to argue about. A simple tax cut plan that Congress could push through quickly might be just what this stalling stock market needs right now. This seems sort of impossible, but it could happen quickly, as long as the parties agree.
But the stock market remains in a good, overall position, and oddly enough, Warren Buffet’s “Mister Market” seems to get things correct in the long run. For all of the political drama, the economy somehow seems strong. There are pockets of weakness, but the numbers are still there. Instead of a stock market looking for information to head lower, we have a stock market looking for reasons to head higher. That said, the Gorilla wishes each and all a wonderful August weekend, and we will be back in action on Monday. Have a great weekend!
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