State of the Stock Market Analysis for the Week Ending November 1st, 2015 (October Was a Little Less Frightening 11-01-15)
A Happy Halloween to all! We all know that October has always been one of those historically spooky and scary months that most investors would prefer to avoid, but this October was exactly the opposite. There were no vampires, witches, ghosts or zombies (aside from all of the usual characters on Wall Street), and the stock market posted some very impressive monthly gains. October closed out with the major indices down by about a half percent each on Friday, but what an overall month of performance it was! For October, the Dow gained 8.5%, the Nasdaq rose 9.4% and the S&P 500 tacked on 8.3%!
The stock market closed the week relatively flat, and aside from Wednesday’s post-Fed bounce, the stock market was rather quiet. For the week, the Dow was up 0.1%, the Nasdaq was up 0.4% and the S&P 500 was up 0.2%. It was one of those weeks that saw the stock market basically catching its breath. August and September were rough, and we saw the S&P 500 dip by around 10% from its early summer high. The big worry was that the 10% “correction” would waterfall into a potential 20% bear market, but the stock market found the energy to bounce.
The bounce came despite mixed earnings and economic news, and it received a lot of help from the Federal Reserve. The Fed not only passed on a late-September rate hike, but it also passed on a late-October rate hike on Wednesday as well. Throw in big QE hints from Mario Draghi and the ECB, as well as a rate cut in China, and we have been off to the races in terms of equity prices. The summer meltdown now seems a thing of the past, and with October’s bullish stock market performance, the door seems open for higher highs for this aging bull market. Stocks seem a bit tired, but they also seem unready to “throw in the towel.”
What was strange about the Federal Reserve’s announcement this week was that it sounded a bit hawkish about a December rate hike. That was probably a smart move by the Fed, mainly because it did not want or need to be seen as jumping on Mario Draghi and China’s bandwagon of further QE and lower interest rates. The Fed, after all, remains independent and is solely following its mandate of controlling inflation and maximizing employment, right? Well, not exactly. The Fed of today is involved in everything, and it does seem that part of its “new” mandate is placating China and keeping the U.S. stock market rising.
There is no sign of inflation, but the employment picture is still a bit weak six-plus years into the post-Lehman (2008-2009) recession and recovery. China was a BIG worry early in the summer as its stock market fell 40%, and the U.S. stock market followed suit with a 10% decline. China is on the mend, however, and the U.S. stock market’s nearly 10% bounce shows that whatever it is that the Fed is doing is working. All eyes are on next week’s employment report, so the hope is that it will show a big improvement from those ugly-looking September numbers.
So, where does our re-energized U.S. stock market move from this juncture? Some strategists are saying that the robust October performance will make it harder for stocks to launch into a rally that will take us to higher highs or even fresh, all-time highs during the historically strong November-December time frame. These strategists are quick to note the mixed earnings season, the strong dollar, and the ongoing parade of mixed economic news. Also, the recent “not-so-great” consumer confidence numbers are a bit of a worry as well. But then again, a rising stock market (and the Fed knows this) seems to cure all problems, so we shall see what happens.
The housing market is still improving, and it is amazing to see articles and commentary appearing regarding “red-hot” housing markets nationwide. Home “flipping” is back in fashion, and as long as rates remain low (or near zero), the housing rally should continue. Once again, this could be putting more pressure on the Fed NOT to raise rates anytime soon. That said, a December rate hike seems unlikely, mainly because if you were the Fed, would you want to torpedo a stock market rally and a housing price boom to close out the year? Probably not!
So the forces are aligned for a potential year-end stock market rally, and that is fine and dandy with the bullish camp. That said, the Gorilla wishes each and all a relaxing Halloween Weekend. Enjoy your trick-or-treaters and Halloween parties, and let’s hope that the bearish ghouls do not rear their ugly heads anytime soon. We are in the “sweet spot” of November and December for the stock market, so maybe we can close out the rest of 2015 solid and strong to the upside. Oh, and if you see a big gorilla out tonight dressed link a gold miner, with his wife dressed as a chunk of gold, say hello! Again, Happy Halloween and have a great weekend. We will be back in action on Monday!
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