State of the Stock Market Analysis for the Week Ending on October 15, 2017 (Mid-Month and Markets Continue Rising 10-15-17)All You Need Is Jobs

Amazingly enough, here we are in mid-October with the stock market edging ever higher. For the week, the Dow Jones Industrial Average rose 0.4%, while the Nasdaq and S&P 500 rose about 0.2% each. We saw all-time highs on Friday, and as we have stated, this is a whole lot different market than we saw 30 years ago. The anniversary of the October 19, 1987 plunge of 22% on the Dow comes to mind, but we seem to have nothing on the horizon that could equal or repeat that fateful day for the stock market. Even the Dow Transportation Index hit an all-time high on Friday, which had bulls smiling as we headed into the weekend.

Accompanying Friday’s upside was a Volatility Index (VIX) that remained below 10, signaling that there is no fear in the stock market right now. That is bullish and bearish at the same time. Some strategists have said that the Fed has spent the last 30 years becoming an expert at calming volatile markets, and that was the result of the Reagan Administration’s “Working Group” on “financial markets” that followed the 1987 meltdown. That policy allowed the Fed to step in to help during future meltdowns, and over the following years, the Fed became quite adept at avoiding 1987-caliber meltdowns.

These policies and actions became known as the “Greenspan Put,” the “Bernanke Put,” and even the “Yellen Put.” This trained investors to know that if something went wrong in the economy or the stock market, the Fed or central banks would always step in and make things better. We saw this sort of central bank policy kick in globally during the 2008-2009 Lehman and housing collapses. The TARP bailout and rate cuts to near zero sort of worked, and this is the legacy we continue to see by the various central banks around the world.

We may have avoided a repeat of the Great Depression following 2008-2009, and the central banks limited it to just a “Great Recession,” but the bailouts and near-zero interest rates may have created distortions in the economy that we are feeling to this day. The Fed’s goal to “normalize” rates was supposed to have occurred years ago, but even today, nearly ten years later, the Fed and central banks are scared to death to raise rates. The Fed is in no hurry to raise rates, and we have seen that in its recent comments.
What could egg the Fed on to raise rates would be a stock market that gets too hot. We are not there yet, and the slow upward grind in stocks does not seem like an overheated market at all. Earnings season is off and running, and as long as stocks do not overheat, a Fed rate hike seems unlikely in December. There are some hot stocks, though, like Netflix (NFLX), which hit an all-time high on Friday, but overall the stock market rally remains broad-based and fairly calm. The Fed does not want to take away the “punch bowl,” so we should see smooth sailing into the end of this year.

The bitcoin phenomena or “bubble” continues, and Jamie Dimon of JP Morgan (JPM) who said on Thursday he would not talk about bitcoin ever again, came out again on Friday talking about bitcoin. His negative comments on the latest bubbly move in the coin, or whatever it is, were interesting. Dimon said on Friday that “if you are stupid enough to buy it, you’ll pay the price someday.” It is pretty outspoken talk from one of the leaders of one of the biggest U.S. banks. And, as “wild-eyed” as bitcoin’s gains have been recently, it does seem to feel more like investing in the 1999 bubble rather than investing in a consumer product stock like Procter & Gamble (PG) today.

The technical charts for the major indices continue to look good, and the slow and steady uptrend since last November remains solidly in place. The trend is slow, steady and deliberate, and as long as we keep getting solid economic numbers and good earnings news, we could be setting up for a nice rise into the end of the year. That said, the Gorilla wishes each and all a wonderful October weekend. Halloween is right around the corner, so as usual, the Gorilla is open to any Halloween costume ideas. Have a great weekend, and we will be back in action on Monday!

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