State of the Stock Market Analysis for the Week Ending on April 8, 2018 Lower Than Expected Job Report Adds to Tough Week 4-8-18)

All You Need Is Jobs

It was a rough close on Friday for the stock market as the major indices finished a tough week on a negative note. The main negative for the week was the March government jobs report that showed just 103,000 new jobs versus the 170,000 that economists had expected. This was down from the February number of 326,000, and while many strategists blamed “the weather,” the miss was fairly large. It had investors selling stocks in a big way on Friday. It is never helpful to have stocks selling off big on a Friday, but that was what we had.

Friday was a hard day, though, and at one point the Dow Jones Industrial Average was more than 700 points lower, but it did bounce back a bit before the close. The jobs report fell short, but it seemed as though the ongoing tariff and trade issues were also in play. The “tit-for-tat” trade issues between the U.S. and China lumbered on, and when the numbers head into the $100 billion levels, it tends to make investors nervous as we witnessed on Friday. The last thing that investors want to see is a trade war, but that was clearly the development that we saw on Friday.

Investors’ fears were evident in the rise in the Volatility Index (VIX) to 23.12 on Friday, before pulling back a bit for a 21.49 close. Friday’s pullback was pretty heavy, but it never came near a “crash” mentality. The yield on the 10-year U.S. Treasury is holding steady around the 2.78% level, which shows that some capital is looking for a safe haven. Having the major stock market indices close out a Friday down more than 2% each is worrisome, but then again, the talk of a “trade war” gets investors a bit worried.

On a technical standpoint, the S&P 500 closed at 2,604, and that puts it slightly above its 200-day moving average at 2,593. It is still way below its 50-day moving average of 2,709, and that would be a level to regain once we can get a bounce from the current 200-day moving average. Friday’s selloff was surprising, but a bounce on Monday would be a very healthy development from a technical standpoint. The S&P represents the broader market in a big way, so bulls are hoping for a Monday bounce from the 2,593 level. Friday declines have been rare for years, so we will see what happens.

Federal Reserve Chairman Jerome Powell was out Friday talking up his opinions, and he seemed quite credible. The hints toward multiple rate hikes this year were there, but he did seem ready to ease up on that goal if the economy did not cooperate. He is very articulate, and he seems to know his subject matter in a big way. The lackluster jobs report that we saw on Friday might make it harder for the Fed to launch its goal of two, three or four rate hikes this year, but we will see what kind of economic numbers that we get in the days and weeks ahead.

Investors are anxious for earnings season to get underway, and those earnings should provide evidence as to how strong the broader economy really is right now. The disappointing jobs number suggests that we may have stalled out a bit, so earnings season should shine some light on the deeper strength of the economy. The numbers will tell, and maybe the weak jobs number was just a blip. We shall see in the coming weeks, but in general, the economy still looks strong. The temporary stock market weakness and the “re-testing” of the early February lows seem likely to bounce, so we will see what happens.

The “trade war” issue is still of some concern, though, mainly because “trade wars” do not tend to lead to anywhere good for the stock market or the economy. The “back-and-forth” volleying can get out of hand, and the last thing the economy needs is for things to get out of hand. The Gorilla wishes each and all a wonderful, relaxing weekend. The Masters at Augusta is underway, and what an amazing and challenging golf course it is. May the best man win! Anyway, a happy weekend to all, and we will be back in action on Monday!

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