State of the Stock Market Analysis for the Week Ending on April 1, 2018 Potential Trade War has Investors Nervous 4-1-18)

All You Need Is Jobs

Stocks cruised into the holiday weekend higher, and Thursday brought us some moderate gains. It was a decent week overall, though, as we saw the Dow rise 2.4%, the Nasdaq gain 1.0%, and the S&P 500 add 1.0%. The small-cap Russell 2000 was up 1.3% for the week. For the quarter, however, the major indices were mixed, with the Dow down 2.5%, the Nasdaq up by 2.3% and the S&P 500 down 1.2%. The Russell 2000 ended the quarter down 0.4%. It was a tough quarter overall, though, as we saw trade and tariff worries, a rate hike from the Federal Reserve and even some interesting rhetoric from President Trump toward FANG giant, Amazon (AMZN).

The major indices are in an important technical position in that they each sit below their respective 50-day moving averages of 25,066 for the Dow, 7,274 for the Nasdaq, 2,729 for the S&P 500 and 1,551 for the Russell 2000. We have either bounced from or have seen the major indices hold their 200-day moving averages of 23,412 for the Dow, 6,742 for the Nasdaq, 2,589 for the S&P 500, and 1,487 for the Russell 2000. Holding these 200-day moving averages will be important if we see any additional weakness as we begin April and the new quarter.

What looked great on Thursday was the weekly jobless claim number that came in at 215,000, to mark yet another 50-year low, and it was down from the previous week’s 227,000. Economists were looking for 230,000 claims, so this is yet more evidence that the job market remains strong. This is, of course, raising concerns that wage inflation could follow in the coming months, so strategists and investors will be watching this closely in the months ahead. We get the March jobs report out next Friday, and economists are looking for 200,000 new jobs versus February’s surprisingly strong 313,000, and the expectations are for the unemployment rate to drop to 4.0%, from 4.1%.

A big story this past week was once again Facebook (FB), which continues to receive scrutiny for privacy issues that go back years. We all know that FB is one of the FANG (FAANG) stocks that helped lead the rally we have had over the past few years. Stock market leaders come and go, and FB has lost a huge chunk of market capitalization. It closed Thursday around $159, and that puts it well below both its 50-day moving average of $178 and its 200-day moving average of $172. This puts Facebook in a rough position from a technical standpoint, and the “quietness” of Mark Zuckerberg’s response to the privacy issues is daunting for the stock. Some analysts say that the damage to “the brand” is as bad as it can get for some companies. We will keep an eye on these developments in the days and weeks ahead.

Amazon (AMZN) is another one of those market leaders of the past few years, and negative comments from President Trump sent the stock reeling. Once again, to have a market “leader” stumble is often an ominous sign. We can only think back to the late-1990s when the “Four Horsemen,” Microsoft (MSFT), Intel (INTC), Cisco (CSCO) and Dell could do no wrong. Qualcomm (QCOM) was not too bad either. But the new leaders could face some challenges ahead just as the leaders during the bubble did. It is very impressive, though, to see how well those former leaders are sort of “leading” again 18 years later. It is as though they are grownups now as opposed to a fairly new company like Facebook.

Having a long, three-day weekend is a plus for investors since it gives us some time to think about the stock market and what might await us for the rest of the year. Earnings season will soon kick off, which should tell us a lot. The upward move in GDP to 2.9% for the fourth quarter suggests that maybe first-quarter earnings will top estimates just the same. This will be a closely watched issue in April, so we will see what happens. Wage pressures will also be key, and we all know that the Fed is ready, willing and able to raise interest rates back to normal levels. The rough part of this is that rates have been so low for so long that most investors and strategists have forgotten what “normal” rates are. Our best to new Fed Head Jerome Powell.

Politics will also play a big role moving forward, and amazingly enough, it is just over seven months until mid-term elections. The buzz is that the Democrats will make big gains, and while that is normal for mid-term elections, a strong economy and a booming stock market could be the “rabbit out of the hat” that could surprise everyone. Either way, it should make for a politically entertaining summer. Trade issues could come into play, but so far, it looks as though the Trump Administration is approaching these issues carefully. The buzz is that it wants “fair” trade and not a “trade war,” so that might keep the global financial markets (and the U.S. stock market) from getting rattled.

We have a couple of great March Madness games set for tomorrow, and we will be back in action on Monday with the start of a new month and a new quarter. It has been a decent year for the stock market, and a bit of a pullback like we are witnessing might actually be healthy for the rest of the year. The Dow and S&P 500 were up for nine-straight quarters, so again, slight first-quarter declines may have been overdue. We will be back in action on Monday. The Gorilla wishes everyone a relaxing weekend!
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