State of the Stock Market Analysis for the Week Ending on January 7, 2017 (New Year of Trading Off to a Good Start1-7-17)
Bulls are pleased to see the stock market off to a good year. All three of the major indices touched all-time highs on Friday, and it has been a great start for 2018. The stock market moved higher on Friday and finished the day strong, with the major indices closing out near their highs of the session. The day’s gains came despite a weaker-than-expected government jobs report, and that summed up the week for the bulls. Having stocks rally against the backdrop of a sub-par jobs report was fitting, and it bodes well for the stock market as we head into the new year of trading for 2018.
The jobs report from the government showed 148,000 new jobs created in December, which was down from November’s 262,000 and the expected 195,000 figure. Following Thursday’s strong ADP private sector jobs report, the thought was that the December government report would be a good one. December’s report was lackluster, though, which was a surprise. Investors shrugged off the report, and the stock market headed higher. How the stock market moved higher on bad news was indicative of a stock market that just refuses to throw in the towel.
Throughout 2017, the stock market quietly headed higher, week after week, and month after month. There were few big up days and very few down days. Alan Greenspan warned long ago about “irrational exuberance” during the late-1990s bull market, but what we saw this past year was calm and cool. There was no “irrational” upside run, and the stock market quietly rose all year. We are seeing this sort of calmness into this new year, and few bulls are complaining. The holiday-shortened week was quiet, but the major indices each hit all-time highs.
Bulls are wondering what could go wrong in 2018, but there are few clear answers. The Federal Reserve could continue to hike rates, and that could be a problem, but even with the Fed having Jerome Powell take the helm soon, a rate hike or two should not rattle the stock market. The Volatility Index (VIX) even dipped down to 9.22 on Friday, which shows that investors and the broader stock market remain fearless. Many technicians get nervous when volatility and nervousness dip to these low levels, but that is where this current market has drifted. Fearlessness is rare in the stock market, but that is where we are right now as stocks have hit all-time highs.
Earnings season is getting underway, and we will see what sorts of numbers get released. Economic news like Friday’s weak jobs report continue to come in mixed, but earnings season should shed some additional light on the broader economy. The fourth quarter seemed strong economically, and the numbers are on the way. Financials are in the spotlight; a sector that has lagged a bit in recent weeks. A strong showing in these sectors could alleviate some worries, so we will see what kind of numbers we get. The stock market seems ready, willing and able to head higher, so the next couple of weeks of earnings should be very telling.
The housing market and consumer confidence remain strong, and regardless of earnings season, investors have an optimism that we have not seen in years. Even the ongoing and divisive Washington DC politics have not rattled the stock market. It just keeps edging higher, day after day, after day. It has been a healthy climb for the past year, and oddly enough, the stock market just keeps churning out solid gains. The lack of fanfare is refreshing, mainly because it has so few people noticing the gains. That is fine with the bullish camp, and the hope is that this same sort of quiet lift will continue well into 2018.
Interest rates and the Fed seem like the only variable that could “rock the apple cart” in 2018, so we shall see what new Fed Head Jerome Powell brings to the table. Janet Yellen did a great job, so we will see what happens with Mr. Powell. He seems unlikely to do anything too quickly, which is another plus for a stock market that is “in the zone.” We are off to a great start for 2018, and the bulls are hoping that this upside trend will continue. That said, the Gorilla wishes each and all a relaxing weekend, and we will all hope that the upside trend we are witnessing will stay in place for the foreseeable future. Stay tuned, and a Happy New Year to all!
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