The anticipation that a “dovish” speech from Janet Yellen in Jackson Hole would somehow send stocks soaring into the close did not exactly play out on Friday. Bulls were looking for a “game on” comment or two from the leader of Federal Reserve, but Planet Janet did what she had to do. It is not her job to rev up (or rev down) the stock market, and she knows that, especially after she scared the daylights out of certain stock sectors last month. She came across measured, balanced and fair, and she made it clear that the Fed is vigilant and engaged in the economy with regard to interest rates, employment, and global financial markets.
Stocks traded throughout Friday’s session mixed and flat and finished that way with the Dow and S&P 500 down about 0.2% on Friday, while the Nasdaq was up 0.14%. It was a decent week, though, for the major indices as the Dow rose 2%, and the Nasdaq and S&P 500 tacked on about 1.7%. In a symbolic sense, the Dow finished about a point above 17,000 much to the pleasure of the bullish crowd. A record high in the S&P 500 and a 14-year-high in the Nasdaq were the cornerstones of the week, which sets a positive tone for the coming September-October time of year.
We all know that the “global shock” play took a breather over the last week or so, but news of Russian military massing again on the Ukraine border fueled a few fears in Friday’s market action. It was a nice break to have threats of violence and war die down for at least a little while. These global threats seem to bounce back quickly, though, as U.S. government leaders publicly stated concerns over the advancement and danger of the extremist Islamic group, ISIS. This left US investors adding yet another possibility to their “global shock” worries.
Speaking of “global shocks,” financial giant Bank of America (BAC) was hit this past week with a global shock of its own. It settled with the Justice Department on a $17 billion settlement for its role (or its acquisitions’ roles) in the 2007-2009 financial and mortgage crisis that nearly brought down global financial markets. As many recall, BofA absorbed, bought or merged Countrywide Financial and Merrill Lynch into its fold, and unfortunately was left holding the bag from the years of legal fallout from those companies.
Countrywide, in particular, was ground zero for of a huge chunk of the allegedly bad loans, bad loan securitization, and bad loan bond sales. It was bad all around, especially when investigators looked at the crazy home loans that were generated and granted in the first place. This has haunted Bank of America shareholders (and executives) for years, so this final massive $17 billion settlement might be the closing chapter of a “housing industry gone wild” back during the mortgage madness of the past decade. It is a big settlement, and the current BofA executives are probably glad to have it behind them.
So with the last week of August bearing down on us, what should we expect from the stock market? Well, the economic numbers we are seeing remain solid, as was the case this past week with jobless claims, home sales, and economic indicators. The Fed is still accommodative and interest rates should stay low for as long as the Fed can keep them that way. Finally, inflation is still in check, oil prices are still low and we are still not seeing any of the many global shocks spinning out of control anytime soon. That is the positive scenario.
So, what could go wrong? Global shocks can change the investment landscape in a blink, so that is one area to definitely keep on our radars. Likewise, inflation is at bay, but a rekindling there might pose some big challenges for the Fed, which would be under pressure to raise rates sooner rather than later. A “too-hot” economy or a “too-hot” employment picture could also derail the Fed’s “easy money” and accommodative stance, but then again, not much has derailed this six-year-old bull market.
On that positive note, we did see a new all-time high in the S&P 500 and a 14-year high in the Nasdaq this week, and that is big news in and of itself. Just like the month of March, August came in like a lion and is going out like a lamb. (Actually it came in like a bear and is going out like a bull, but you get the point!) It has been a very constructive month for the bulls. That said, the Gorilla wishes each and all a fun, restful and relaxing weekend. September and October are right around the corner, and we all know that those months can be action-packed. Again, have a great weekend and we will be back in action on Monday.
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