It was one of those week’s that did not answer many of the longer-term questions about the economy or the stock market. We saw weekly jobless claims drop to their lowest level in 42 years, but then again, we continued to see mixed earnings news. Microsoft (MSFT) and Google/Alphabet (GOOGL) posted disappointing earnings that sent Microsoft down 7% and Google down 5% on Friday alone, and that pushed the Nasdaq down by 0.8%. Flat and mixed was the theme of the week, and the majors ended with weekly gains of 0.6% for the Dow and 0.5% for the S&P 500, while the Nasdaq lost 0.7%.
The good earnings news of the week came from McDonald’s (MCD), whose “all-day breakfast” menu is a hit and is translating into stellar numbers. We are not sure if that is good for the country or the stock market (or waistlines!), but the ability for consumers to buy an Egg McMuffin at three in the afternoon has reinvigorated McDonald’s sales and its stock price. Earnings season remains mixed, though, and that is why stocks are flat and holding on to their recent gains and trying to figure out which way to move from these elevated levels.
For the year, the major indices are mixed, with the Dow up 3.3%, the Nasdaq down 2.0% and the S&P 500 up 2.3%. It has been a bumpy year with the 10% drawdown in the S&P 500 and the roughly 10% rally that followed the late-February lows. The small-cap Russell 2000 rose 1.1% this week, which puts it up 0.6% for the year. Bulls are pleased to see the recent strength in small caps, and that is another plus for the bullish camp as we head toward the final week of April.
Mario Draghi and the European Central Bank (ECB) came out this week with “dovish” statements and an implied promise to continue with more QE and “whatever it takes” to keep EU financial markets afloat, but then again, that is all the ECB ever says. The ECB has done “whatever it takes” for years, and will likely continue to do the same. That is in stark contrast to our own Federal Reserve that has raised rates by a QUARTER-POINT once in the past nine years. The dovish ECB makes our own Fed look quite hawkish with that SINGLE rate hike in December.
Janet Yellen and the Fed have hinted at more rate hikes in the U.S. later this year, but keep in mind that the January/February 10% correction is still fresh in the Fed’s mind. The Fed meets next week, but the odds of a rate hike given the so-so economic and earnings news seems very unlikely. With the Presidential election drama and upcoming summer conventions, the Fed might choose to lay low and not do much of anything controversial or aggressive. This could keep investors in a good mood, which might be enough to keep the post-February rebound heading higher.
Presidential elections are strange, though, and we all recall the late-summer and early fall of 2008 when Lehman collapsed. The Republicans rolled out John McCain as their nominee and Democrats dumped Hillary Clinton for Obama. The rest, they say, is history. With no clear leaders for President right now, we have a strange brew of economics and politics that could lead anywhere. This could be why stocks are recently trading flat and mixed and unsure of which direction to go. Either way, it should make for a challenging and interesting summer for financial markets.
The Federal Reserve is in a tough spot for next week’s meeting. It has promised to remain “data driven,” but the “data” in terms of earnings and economic news is simply not that great. So will Janet Yellen play the “dovish” card or the “hawkish” card? We shall see, but the odds are that she and her crew will play it dovish in order to preserve the recent rally in stocks that may have been in part caused by the December quarter-point rate hike. The Bank of Japan also meets next week, and with negative rates in Japan, we can expect dovishness there as well.
That said, the Gorilla wishes each and all a restful weekend. We could be in for a raucous summer in financial markets and politics, so enjoy the calm of this late-April weekend. The price of oil is back near $44 per barrel, so that is one global “wild card” that is temporarily off the table. It certainly has added to the calmness we are currently witnessing. We will be back in action on Monday, and once again, have a great weekend!
Let’s just hope the Fed and other central banks know what they are doing, but as time goes by, it seems as though they have no idea what they are doing. Stocks are holding up relatively well, though, so that is a plus. Spring is here, and that is definitely a plus. The Gorilla wishes each and all a relaxing weekend, and we will be back in action on Monday. It’s time to plant and work in the yard, so enjoy the weekend and enjoy a weekend away from the markets and the crazy Presidential race if you can make the time!
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