It was an interesting week for the stock market, as it felt more dramatic than it actually was. We had a lot of politics, a Federal Reserve announcement, and the much-anticipated jobs report. So you would have thought it would have been a razzle-dazzle week for the stock market. Stocks did close out Friday with a solid upside win, but for the overall week, the Nasdaq and the S&P 500 were up 0.1%, and the Dow was down 0.1%. It was a boost for investors, however, to see the Dow Jones Industrial Average close back above the psychologically important 20,000 level. Bulls are hoping that we can build on Friday’s gains next week.
What fired bulls up on Friday was the impressive government jobs report, which showed that 227,000 jobs were created in January. That topped December’s 157,000, as well as the 197,000 jobs that economists had expected. This report followed Wednesday’s ADP private sector jobs number that came in at 246,000 for January versus December’s 151,000, and it signaled that the economy is still alive and kicking fairly well. Earnings season has also been good, although a revenue miss by Amazon (AMZN) did weigh a little on investor sentiment.
Janet Yellen and the Fed Heads left rates unchanged on Wednesday, and for a Fed that had hinted for the past two months that we could see as many as three rate hikes this year, we saw a fairly “dovish” Fed that looks in no rush to raise rates anytime soon. The buzz now is that the Fed will wait on rate hikes at least until June, and Ms. Yellen made it clear that she wants to see “real” growth rather than just increased confidence among business and investors. Odds are that the dismal 1.9% fourth-quarter GDP we recently saw was weighing on the mind of the Fed. Why would the Fed raise rates with a strong stock market and an ugly GDP number?
The Fed is likely enjoying being out of the picture for the time being, and with the 10-year U.S. Treasury up around 2.5%, the longer-term bond market has already raised rates. Janet Yellen and her team remember all too well the big stock market selloff that followed the Fed’s December 2015 rate hike that sent the S&P 500 into a 10% decline. The Fed was able to sneak in a quarter-point rate hike this past December with the stock market hardly noticing it, so maybe the Fed has decided “to leave well enough alone.” If the market and the economy are not broken, why try to fix them? Holding off on rate hikes until summer is probably a smart move by the Fed.
Politics might also have been on the Fed’s mind this week, mainly because the new administration is still at work building a cabinet and crafting broader policy initiatives and direction. President Trump has really only had ten business days at work so far, and there have been quite a few controversies. The Fed is likely choosing to lay low on rate hikes until the picture in Washington DC becomes clearer, and interestingly enough, the stock market seems to have chosen to do the same thing. That might explain the relatively flat performance we saw for the major indices this week.
The plus for the bulls right now is that given the fair amount of domestic political divisions, and a few global confrontations, the stock market is holding up extremely well. Stocks seem to be looking for a “green light” to head higher, and we could get that in the next week or so. Changes are tough, but once the stock market realizes that the country and the economy can absorb these changes, we could see this bull market flex its muscles again, and head higher. The Federal Reserve and rate hikes are on hold, so it is just a matter of confidence returning to investors if we are to see the stock market head higher.
It is Super Bowl Weekend, so it is a great time to take a break from the financial markets and watch New England and Atlanta battle it out on Sunday. The commercials are almost as much fun to watch as the game, so that should provide some fun backdrop to this first weekend of February. We will be back in action on Monday, and in the meantime, the Gorilla wishes each and all a relaxing weekend.
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