State of the Stock Market Analysis for the Week Ending on July 15th, 2018 Nasdaq Hits All-Time High Again, Earnings Season Underway 7-15-18)

All You Need Is Jobs

Bulls were thrilled on Friday to see the Nasdaq hit another all-time high. The major indices are looking good, but it was a definite positive to see the broader market slightly higher on Friday. Earnings season is underway, and while we saw a mixed showing among the biggest banks, it was a strong kickoff for earnings season. JP Morgan Chase (JPM) beat estimates, but Wells Fargo (WFC) fell short. Wells Fargo is still dealing with the negative fallout from its sales practices, but overall, the banking sector seems intact going forward.

The tech-heavy Nasdaq keeps hammering away, though, which is another plus for the stock market. The FANG stocks continue to rebound from their recent pullback, and that has been a plus for the major indices of which the FANG stocks make up a huge percentage. The tech rally is helping the averages, and few bulls are complaining about the lift. Even the “old techs” like Microsoft (MSFT) are doing extremely well, which is great for the broader stock market.

The good news is that the yield on the 10-year U.S. Treasury is at 2.83%, and we all know that the fears of the 10-year popping back above 3.0% have simply not happened. Jerome Powell and the Federal Reserve have been fairly low-key of late, and that seems to be helping the stock market. The Fed has been quiet, and while it has more short-term rate hikes on its platter, it has to be noticing the longer-term rates. The buzz has been for as many as three rate hikes this year, and even if the Fed does raise interest rates, the stock market might not have that big of a negative reaction.

The Federal Reserve wants to “normalize” rates that were lowered following the housing crisis from nearly ten years ago, and it has been a long and slow process. What was supposed to be a “temporary” solution has dragged out a long time. Housing has rebounded in a big way, as has the stock market. Higher short rates would help regional banks and the insurance sectors, so maybe higher rates from the Fed could actually be good for the broader economy and individuals who have savings in banks.

It has been a relief for investors to have the “trade wars” settle down a bit this past week. There have been some volleys back and forth, but the good part is that these disagreements seem to be settling down a bit. It might be resulting from President Trump being in Europe, but the good sign is that the tariff wars might be quieting down at least for the time being. Tariffs can greatly hurt participants, so hopefully, the governments involved can reverse these policies and return toward a more free market mentality.

Earnings season is underway, and the thought among analysts is that it will be a good one. Estimates have been lowered so the vibe is that many companies will top estimates. The big banks have come in mixed thus far, but we will soon see numbers from the broader economy. Economic news seems to favor a strong earnings season, so stay tuned. The Gorilla wishes each and all a relaxing July weekend, and we will be back in action on Monday!

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