It was an interesting week to say the least. The Dow Jones Industrials, the S&P 500 and the Russell 2000 each hit all-time highs on Friday, and the Nasdaq came within striking distance of its record level. Janet Yellen’s testimony before Congress helped set the upside tone for the week, where she basically said that the Fed would continue with its plans for another rate hike or two this year. She also paved the way for the Fed to begin selling off bits of its $4.5 trillion balance sheet in September. Stocks took this with a grain of salt, and finished the week with gains of 1.0% for the Dow, 2.6% for the Nasdaq and 1.4% for the S&P 500.
The fact that we are seeing all-time highs for stocks is impressive, especially since not that many people are noticing. When the stock market soared in late-1999 and early-2000, it was front and center on most mainstream news. Stocks were the talk of the town, but strangely enough, these new highs are not getting much attention. This current rise in equity prices has been stealthy and very, very quiet. Many strategists are saying that we are at historically expensive levels and that a pullback might be in the cards, but the stock market refuses to buckle and keeps edging higher.
Earnings season is underway, and we saw some great numbers from JP Morgan Chase (JPM). JPM Chairman Jamie Dimon saw his bank’s shares fall about 1% on Friday, and he had some spirited comments about the U.S. economy. Dimon said that it was “almost an embarrassment” to be an American banker traveling abroad in that our domestic politics and lack of tax cuts and deregulation are hurting our economy. Yes, we may have lackluster growth, but we do have a stock market at all-time highs. Dimon may have used some bad language in his critique of the U.S., but at least he was open and honest about what he sees.
Fearlessness among investors has always been a worry among investors, but we are at a fearless extreme right now. The Volatility Index (VIX) closed on Friday at 9.51; a level not seen since 1993. Stocks are supposed to climb that proverbial “Wall of Worry,” but after eight years of QE and near-zero interest rates, investors know that the Fed will step in if anything goes wrong. Janet Yellen made it implicitly clear that any asset sales or interest rate hikes will be “data driven,” which means she is in no rush to raise interest rates and deflate our buoyant stock market. This could also explain the historically low levels of the VIX.
As for the economy, we saw more “so-so” numbers on Friday. Consumer sentiment for June fell to 93.1; below estimates of 95.0, as well as down from the previous 95.1. Retail sales for June were down 0.2% versus expectations of a 0.1% increase and May’s 0.1% decline. These are not bad numbers at all, but these ongoing lackluster reports make it more difficult to justify a stock market at all-time highs. Earnings season is off to a good start, and as long as we get good numbers from the mega-techs, this market could head higher.
Politics will continue to be in the spotlight, but it is amazing that for all of the Russian/DC drama, the stock market is still unfazed. What a complicated mess that whole thing is, but if we got through Watergate, we will likely get through this as well. The buzz is that the various investigations could drag out for months or even years, so we will see what happens. That said, the Gorilla wishes each and all a relaxing July weekend. We will be back in action on Monday!
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