State of the Stock Market Analysis for the Week Ending January 15th, 2017 (Low-Key Week With An All-Time High 1-8-17) All You Need Is Jobs

Quiet can sometimes be good when it comes to Wall Street. It was definitely a quiet week, and while the Dow failed to take out the 20,000 level, we did see the Nasdaq hit a new, all-time high on Friday, which was a very bullish development in an otherwise low-key week for the stock market. For the week, the Nasdaq rose 1.0%, the Dow fell 0.4% and the S&P 500 posted a weekly decline of 0.1%. We have a Fed meeting coming up as well as the Presidential Inauguration next Friday, so it was not surprising this week to see stocks acting cool, calm and collected as we head into the second half of January.

Quiet can sometimes be good when it comes to Wall Street. It was definitely a quiet week, and while the Dow failed to take out the 20,000 level, we did see the Nasdaq hit a new, all-time high on Friday, which was a very bullish development in an otherwise low-key week for the stock market. For the week, the Nasdaq rose 1.0%, the Dow fell 0.4% and the S&P 500 posted a weekly decline of 0.1%. We have a Fed meeting coming up as well as the Presidential Inauguration next Friday, so it was not surprising this week to see stocks acting cool, calm and collected as we head into the second half of January.

The big news of the week came on Friday, and JP Morgan (JPM), Bank of America (BAC) and Wells Fargo (WFC) posted decent enough earnings to have all three stocks closing higher on Friday. This good news from the banks sets a positive tone for the upcoming earnings season, and investors are hoping that we will see the rest of earnings season follow the banks’ lead. Financials have been on fire since the November election, and the overall sector is up about 20%. A strong earnings season would help justify the gains we have witnessed in the broader stock market, so we will wait and see as earnings season shifts into overdrive.

Economic news was good but not all that great on Friday, as we saw retail sales for December rise by 0.6% versus the expected 0.8% increase, which was up from November’s 0.1% rise. Consumer sentiment came in at 98.1 versus the excepted 98.8 and the previous 98.2 reading, so between retail sales and consumer sentiment, it is clear that consumer sentiment is holding up well. Consumers are the key to economic growth in 2017, so it was a plus to see this sector, as well as housing holding up so well over the past couple of months.

So where is this stock market headed in 2017? Investors are pondering this question right now, and it looks as though the stock market is waiting for a catalyst or two. The new Trump Administration is not quite clear on new policies, and we will just have to wait until the confirmation process of each of these new “policy makers” plays out in the weeks ahead. There are themes emerging, but there is not much in terms of concrete policies that the stock and bond markets can react to, so once again, we will just have to wait and see what sort of investment themes emerge.

As for interest rates and the Federal Reserve, the Fed seems happy to remain on the sidelines. It has hinted at two or even three rate hikes in 2017, but with the 10-year US Treasury at 2.38%, one or two (or three) quarter-point rate hikes might not have the same magnitude that they would have a year ago. Bond guru Bill Gross has warned that having the 10-year US Treasury edge above 2.6% could cause problems for stock and bond markets, but that level still seems unlikely anytime soon. Yes, we could see a spike in long rates, but the current level seems in place for the time being.

So earnings are key right now for the stock market, and it will be interesting to see if the numbers can support the gains we have seen in stocks over the past two months. Bulls know we are a little extended, and jokes about the “Trump Bump” turning into the “Trump Slump” are circulating. The broader economic numbers are holding up well, however, but we need proof that the economy is still hitting on all cylinders. It will be an interesting week ahead, and hopefully, the Dow can break through 20K and not look back. Bulls would love to see 20K become a new base rather than a resistance level, so stay tuned!
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