State of the Stock Market Analysis for the Week Ending on March 11, 2018 Jobs Report Fires Up Friday’s Market 3-11-18)

All You Need Is Jobs

What a week it was on Wall Street! What fired up the stock market on Friday was an extremely strong jobs report. It showed that 313,000 new jobs were created in February, which topped both estimates of 225,000, as well as January’s 239,000. The worry was that the economy might be cooling off, but these are numbers show that the economy is stronger than many have thought. Unemployment remained at 4.1% versus expectations for a drop to 4.0%, but it was good news to see this figure holding strong near its lowest level in nearly 20 years. Economists call this “full employment,” and that is good news for workers, despite the fact that workers are still not getting paid more money. Average hourly earnings rose 0.1% versus the expected 0.2%, and last month’s 0.3%.

The lack of earnings gains is a puzzle, and earnings growth is one of those factors that supposedly worries the Federal Reserve. The Fed continues to watch wage growth as the “Elephant in the Room” that could trigger inflation, but the “elephant” is just not there (yet). The stock market rocked on the employment news, as we saw all three of the major indices rise by about 1.7% each on Friday alone. Anytime we hear that the Dow Jones Industrial Average rises 440 points in a day usually has bulls smiling big. The Nasdaq hit an all-time high, and it was a fitting end to an extremely bullish week that had the Nasdaq at new highs, following its February 8th pullback low.

For the week, the major indices saw gains of 3.3% for the Dow, 4.2% for the Nasdaq and 3.5% for the S&P 500. These are big weekly gains, and suddenly we have the major indices back near all-time highs. The upward momentum is back in action, and it took less than a month for the majors to put the early February “correction” behind them. Where we go from here is anyone’s guess, but the jobs numbers were the spark that re-lit the bull market, and that has the bullish camp back in an optimistic mood as we head into the latter part of March. The key now is to see more upside follow through next week, so we will see what happens.

The other “wild card” of the week was obviously President Trump’s offer and acceptance to meet “face to face” with Kim Jong Un of North Korea “before May.” Global politics is not supposed to work this way at all. Trump supporters say that the “hardball stance” Trump had toward Kim Jong Un might have worked. The calling him “Rocket Man,” and the threat of “fire and fury” toward the North Korean leader may have set the stage for cooperation. They both agreed on a meeting, though, and meetings can historically be a whole lot better than a modern war. This “quick” meeting runs counter to the usual process of months of planning.

Oddly enough, Dennis Rodman might attend. It has always been a mystery as to why Kim Jong Un befriended former Chicago Bulls player Dennis Rodman, but apparently, Kim attended schools in Switzerland when he was young and developed a big interest in basketball. If it takes being a basketball fan and reaching out to the West through a friendship with Rodman for world peace, then so be it. A quick meeting by Trump with a dictator to “denuclearize” North Korea could work. It is the strangest form of global political protocol, but then again, having a President that “tweets” is quite a new thing too.

As for the stock market, the Kim-Trump meeting is sort of bullish. Getting rid of nuclear tensions in East Asia can only be positive for the region. Launching missiles toward Hawaii is not good for regional business, and maybe this is a strange way to calm the nervousness in South Korea as well. The dual appearance of athletes from both North and South Korea in the Olympics led to commitments of meetings between the two countries, which is another plus for the region. The news of a Trump-Kim meeting is astounding, so maybe, just maybe, it will be a plus in toning down a nuclear threat in that region of the world.

As for the stock market, this week’s vibrant rise is both good news and bad news. The employment report was spectacular, but it does give the Federal Reserve and Jerome Powell almost a mandate to raise interest rates three or even four times this year. It is a green light to finally “normalize” interest rates, and this has been a goal of the Fed for nearly nine years. How stocks react is the new “wild card,” but since the market is up so much, any big correction might be a healthy and normal reaction. We shall see. That said, the Gorilla wishes each and all a relaxing weekend, and we will be back in action on Monday!

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