State of the Stock Market Analysis for the Week Ending on June 17th, 2018 Good Signs for Stock Market, Even Though Week Ends Lower 6-17-18)

All You Need Is Jobs

Although the Dow Jones Industrial Average dropped more than 280 points at midday Friday, it later cut its losses and finished just 84 points lower. The “tariff wars” continued, and while the Trump Administration and China seem to be in a battle, it does not look like it will progress into an actual “trade war” that will rattle the broader financial markets in a big way. If fears of this were real, we might have already seen markets react in a much bigger and dramatic way.

We did see the Nasdaq at an all-time high this week, which was a big plus. The mega-techs are still leading the way higher, and while pockets of the stock market are lagging, it is always a positive to see big-cap tech and the small-cap Russell 2000 leading the way toward higher highs. Big media mergers are in the spotlight, and that seems to be helping to put investors in a good mood, and again, that is a generally a good sign for the stock market.

We have a Federal Reserve that is ready, willing and able to continue to raise interest rates back to “normal” levels. This is ultimately good for the economy, but there are also some bumps along the way to bringing interest rates to traditionally “normal” rates. It helps money market rates and CD rates for normal savers in banks, but as rates rise, it could hurt home buyers and small businesses. We will see what happens, but Jerome Powell and the Fed seem committed to higher rates in 2018.

The big worry about the 10-year U.S. Treasury yield moving above 3.0% was a concern, but with Friday’s 2.92% closing yield, it is clear that rates are somehow not heading higher. This subdued rate scenario is good. DoubleLine Bond Chief Jeff Gundlach has warned for the past year that higher rates were on the way, but higher rates have simply not appeared. It is bullish for stocks, and it is impressive that the long rates are staying so low. Inflation seems at bay, which is another plus.

The good news for the week was that the University of Michigan Consumer Confidence Index came in at 99.3 versus expectations of 98.5 and the previous 98.0. This shows that consumers are still holding tight, and that is great to see. The Empire State Index rose to 25.0 versus the previous 20.1 reading. It means that if the economy in New York is still looking good, then the economy must be on the right track, at least for the time being in the U.S.

Summer is here, and the Gorilla wishes each and all a relaxing and wonderful weekend. The Washington DC scene is as confusing as ever, but the stock market continues to hold up extremely well. Economic numbers continue to hold up better than we could have imagined. We will be back in action on Monday, so again, have a great June weekend wherever you will be!

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