State of the Stock Market Analysis for the Week Ending January 8th, 2017 (Investors Optimistic About New Year 1-8-17) All You Need Is Jobs

Once again, it was close, but no 20,000 cigar for the Dow Jones Industrial Average as it got to within a third of a point of 20K before pulling back a bit at the close. The Dow did touch an all-time high of 19,999.63, though, and the S&P 500 and the Nasdaq touched all-time high as well. It was a fairly mellow day overall, mainly because of the holiday-shortened week, but it was still very encouraging to see the major indices bumping back up toward fresh, all-time highs. Many strategists have said that a Dow 20K close would get major mainstream media attention, which could bring in a boatload of investor money that has been sidelined for years.

Having the Dow close above 20,000 would be a vote of confidence for the economy, and by osmosis, a vote of confidence for the incoming Trump Administration. The Trump cabinet position choices will begin to face Congressional approval next week, but so far, the various picks do not appear to be making investors nervous at all. With roughly five billionaires and several Goldman Sachs guys in tow, Trump is forming a team of Washington “outsiders” to get things done quickly. We are certain to hear negatives on these picks in the weeks ahead, but for the time being, the stock market is giving a “thumbs up.”
In economic news on Friday, the government’s non-farm payroll number for December came in at 156,000 new jobs versus the expected 180,000 and while it was below November’s 204,000, it was still a relatively good number. It was good, but just not that great, but then again it was just one month’s report. Hourly wages increased by a seven-year high of 0.4% versus the expected 0.3%, and that could give the Fed a “green light” for its two or three interest rate hikes in 2017, so we will see how the Fed rate question plays out in the weeks and months ahead. Strong jobs numbers and rising wages are exactly what the Fed needs in order to support rate hikes.
With the major indices at all-time highs, the Federal Reserve also has a ton of leeway if it does begin to launch its 2017 rate hike agenda. We will still see how GDP and more labor numbers play out, but this 2017 scenario is a lot different than last year as the S&P 500 was in meltdown mode following the Fed’s 25-basis point rate hike in December of 2015. The S&P 500 dropped about 10% through February of 2016, but we seem to be in a very different scenario as we head into 2017. Political worries are out of the picture, longer-term interest rates have already risen, and the economy does seem sound.
The strange thing about an economy and stock market that look “sound,” is that something ultimately goes wrong. Even the best strategists and market sages are divided on “what could go wrong,” but there are a few out there who are saying that investors should remain cautiously optimistic about the coming year. Three rate hikes from the Fed could possibly unsettle the stock market, as would a spike in long-rates that could really hit the bond market in terms of both corporates and Treasuries. Interest rates are key for 2017, so again, with investors in a bullish mood, it is always smart to consider alternative scenarios.
We do have a new Administration that has promised tax cuts, fiscal stimulation, and deregulation for business, which could be why the stock market has been performing so well since November 8th. Goals and plans are great, but it is another thing to get those goals and plans approved by the legislature. Mr. Trump has his work cut out for him, so we will see what sort of policies eventually emerge in the “first 100 days.” The Federal Reserve will likely wait until March before its next rate hike, so that should keep investors in a positive and relaxed mood, and that is bullish in the short term.
The stock market is poised for higher highs, so it will be great if we can continue to get positive economic news. Earnings season will be underway in the coming weeks, so we will get some feedback from corporations as to how strong the economy really is right now. It is a big week for football, so if you are so inclined, enjoy sitting comatose on a couch for three or four hours numerous times this weekend. That might be a great way to spend the weekend given all of the cold, rain, and snow sweeping across the U.S. The Gorilla wishes each and all a fun weekend, and we will be back in action on Monday. The Gorilla is neutral on football, but a New England versus Dallas Super Bowl would be a pretty cool ending to what has been a challenging year (ratings-wise) for the NFL.
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