State of the Stock Market Analysis for the Week Ending on July 1st, 2018 Month Ends on Positive Note, After Up and Down Week 7-1-18)

All You Need Is Jobs

Friday was an interesting day on Wall Street in that the major indices closed positive, but it capped off a down week. For the week, the Dow and S&P 500 lost 1.3% each, the Nasdaq fell 2.4%, while small-cap Russell 2000 dropped 2.5%. It was an “up-and-down” week, but at least we saw an up day to close out the month of June on a positive note. It might not have been a huge positive note, but it was positive despite the late-day fade. The Russell 2000 was lower, but the major indices were slightly higher.

Trade worries remain front and center, and we learned a lot this past week seeing the Harley-Davidson (HOG) drama unfold. Harley is an iconic American brand, and the company is building a manufacturing plant in Thailand. That might not play well in Wisconsin where the company is based, but it saves the company a lot of money for it to deliver those bikes to Chinese buyers, who are a big part of the growth area of the company. Trade is interesting, and it will continue to remain in the picture.

In economic news, we saw consumer sentiment come in at 98.2 versus expectations of 99.0 and the previous reading of 99.3. This is a very positive number just the same, and it shows that the consumer base is still very optimistic. As long as consumers are still in the game and not getting down, it is a good sign for the broader economy. Consumer sentiment ties in closely to everything from housing to retail sales, and the numbers show that the overall economy remains stronger than we think.

The big question now is what the Federal Reserve will do with regard to interest rates for the rest of the year. The Fed seems on a push to raise rates two or three more times this year, and with a somewhat shaky stock market, this might be a tough road to follow. The buzz is that the Fed should move cautiously and not “rock the boat,” but the Fed seems ready, willing and able to keep raising rates through the summer and the rest of the year. This could rattle the stock market, so we will see what happens.

The newly open Supreme Court seat left by the retirement of Justice Kennedy will be on investors’ minds, but like all of Washington DC, it seems to not affect Wall Street very much. That is good for the broader stock market, and hopefully we will see the stock market give another shrug as it has over the past couple of years of political turmoil. It is amazing to see the stock market remain resilient and strong despite what goes on in Washington DC, so we may be likely to get more of the same in the months ahead.

A very important earnings season kicks off next week, and the buzz among analysts is that it should be a good one. The recent first-quarter GDP numbers were lowered to 2.0% from the previous 2.2%, so bulls are hoping that we can see some strong earnings for the second quarter that will contradict the lackluster first-quarter GDP number, so stay tuned. That said, the Gorilla wishes each and all a relaxing weekend, and we will be back in action on Monday. Have a great weekend!

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