State of the Stock Market Analysis for the Week Ending on December 17, 2017 (Major Indices Bounce on Tax Reform Optimism 12-17-17)
It was a great day for the stock market on Friday, as we saw the major indices bounce on tax reform optimism and head to all-time highs. It is the first big piece of legislation that could help the stock market build on its year-long gains, so the bullish camp is hoping that this complicated bill might get passed before Christmas or the end of the year. The interesting part of the debate is how much compromise and “tweaking” we have seen in this big bill. Some critics of the bill say that it might actually “contract” the economy rather than succeeding the goal of “stimulating” the broader economy.
What mattered Friday was that we saw investors give a sigh of relief and the stock market head higher. We had the Federal Reserve meeting this week with Janet Yellen closing out her tenure, and despite a 25-basis point rate hike, stocks closed the week on a positive note. Earnings and economic numbers continue to look good, which should help the revived Santa Claus Rally continue to take flight for the rest of the month. The Fed did say that it planned on as many as three rate hikes in 2018, but that still had no negative impact on the broader stock market. Rates are still low, and it will be Jerome Powell’s leadership to deal with after he takes over as Chief Fed Head early next year.
The Bitcoin story is still on the front burner, and it is amazing seeing the many “crypto-currency” companies, appearing out of nowhere. Investors are still wondering if this a “Bubble” or “Real,” and as we have said, when we look back to the dot.com bubble of 1999-2000, it was a combination of both. Amazon (AMZN) was a book-selling start up, while Pets.com was a viable contender. One company led by Jeff Bezos did well, while the other company (for pets!) did not fare as well. The dot.com era was a long time ago, but the comparisons to today are very historically similar to the current environment.
Stocks seem to be in a good position to keep heading higher. The consensus is that given the solid year for stocks, there is no rush to sell this late in the year since the momentum still seems like the broader market might still be headed higher into 2018. Some themes for 2018 are emerging, and we will monitor them closely into January. This has been one of the most surprising years for the stock market in a long time, and the winners and losers have obviously had top strategists and institutions scratching their heads all year. The amazing part about this year is that it occurred without Washington DC or the Federal Reserve doing much of anything.
Investor sentiment has never gone “irrational” all year long, and as Goldman Sachs recently said, we are seeing “rational exuberance” as opposed to Alan Greenspan’s 1990’s comment about “irrational exuberance.” We have simply not seen anything coming close to the runaway bull markets of the past. With things like Bitcoin appearing, we could be leaning in that direction, but this year’s gains have been calm and cool. This has been a surprisingly “slow and steady” market, and we will see if it starts to overheat as we head into 2018. The 1999-2000 tech-driven bull market headed into 2000 very hot, and the Nasdaq finally peaked in early March of 2000.
We are nowhere close to those levels of “hotness,” but will still have two weeks before the New Year. The terms “blockchain” and “mining” are new, and while fun, they show that some new concepts could turn into bubbly companies and investments quickly. The broader economy is strong, though, and the odds for a late-year broader-market rally are still in place. Earnings continue to come in well, consumers are spending like mad (on Amazon), and the housing market is strong. This is the perfect picture for a year-end rally, so stay tuned. The Gorilla wishes each and all a wonderful December weekend, and we will be back in action on Monday. Happy Holidays to all!
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