State of the Stock Market Analysis for the Week Ending July 2nd, 2017Ā (Indecisive Week for Stock Market 7-2-17)All You Need Is Jobs

Stocks closed out an indecisive week, well, indecisive. We saw a big bounce in banks and financials (BKX), but we also continue to see selling in some of the mega-cap tech names. These offsetting forces left the major indices finishing lower for the week, with the Dow down 0.2%, the S&P 500 off by 0.6% and the Nasdaq down by 2.0%. Despite the mixed close on Friday, we closed out the first half of the year with some impressive numbers. Year-to-date, the Dow and the S&P 500 are up about 8% each while the Nasdaq, even with its recent weakness, is up about 14% for the year.

This is a pretty solid performance for the stock market considering that the initial boost this year was on hopes of Trump tax cuts, deregulation and an overhaul of the nation’s healthcare system. Well, we saw none of this happen, but we have certainly learned a lot about hardball politics in Washington DC. The term “lawyering up” seemed to replace the idea of “passing new legislation,” but that is where we are. Some bulls even think that if Congressional hearings, subpoenas, and legal maneuvering helped fire up the stock market, we might as well keep doing the same for the second half of 2017!

Yes, that is a cynical and humorous comment, but we all know that the stock market historically has done well when “nothing gets done” in Washington. A quote from that great classic movie “Cool Hand Luke” comes to mind when we think of DC right now. After winning a poker hand with bad cards, the great Paul Newman (as Luke) says, “Yeah, well sometimes nothin’ can be a real cool hand.” The stock market had an extraordinary first half of the year without much help from politicians, so we will see if this sort of performance continues, with or without the political class.

The one worry many bulls are expressing is that there is a lot of optimism baked into the stock market right now, and higher highs might be tough without some “real” economic numbers. Thursday’s upward revision of first-quarter GDP from 1.2% to 1.4% felt good, but it was kind of like kissing your sister. Yes, it topped expectations, but 1.4% is not that great of a number especially when we have a Fed that seems ready to continue to raise interest rates. On Wednesday, we get the Fed’s “minutes” from its June meeting, so it will likely provide some clues as to how dovish or hawkish the Fed is right now.

Housing continues to perform well, and that is a plus, and as long as long-rates remain low, housing should keep chugging along. The yield on the 10-year Treasury finished the week at 2.30%, which is the main driver of home loan interest rates. Even if the Fed does raise rates one or more times this year, as long as the yield on the 10-year stays in check, it should not have that much of an effect on housing. Case-Shiller’s recent report showed home price increases of 5.5% year-over-year, which is another plus for homeowners.

In other economic news that we saw on Friday, consumer sentiment for June came in at 95.1, and that topped both expectations and the previous 94.5 reading. Consumer spending for May rose 0.1%, and that was in line with estimates but down from April’s 0.4% increase. Consumer confidence and spending are just one more piece of the puzzle, and while the numbers could be better, they are decent numbers that suggest the economy is still hanging tough.

All eyes will be on Friday’s government jobs report, and estimates are for 174,000 new jobs for June versus May’s lackluster 138,000. The unemployment rate is expected to rise to 4.4% from the previous 4.3%, so investors will be watching these numbers closely. The stock market has a shortened session on Monday ahead of the Fourth of July holiday, so for any readers taking a long weekend, the Gorilla wishes a Happy Fourth to all! Don’t forget to get those flags out, and again a fun-filled Star Spangled weekend to you, your families, and friends!

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