State of the Stock Market Analysis for the Week Ending September 18th, 2016 (Rate Hike Seems Unlikely as Week Finishes on Low Note 9-18-16)

All You Need Is Jobs

It was a strange week for the stock market, and we closed out Friday to the downside. It was not all that bad of a week, though, and the hefty 12% rise in Apple (AAPL) left investors in a good mood. The apparent success of the iPhone 7 in terms of sales was a plus, but oddly enough, there were few lines outside Apple stores or Verizon or AT&T outposts as we have seen in past “hot product” Apple launches. The new iPhone has a great camera and no earphone outlet, but the supposed sales boom behind it was telegraphed just the same, and the stock price of Apple rose sharply for the week.

It was an up and down week for the stock market, and when the closing bell rang on Friday, we were down for the day. For the week, though, the major indices had notched a modest win, with weekly gains of 0.2% for the Dow, 2.3% for the Nasdaq and 0.5% for the S&P 500. Although it was an “up and down” week for stocks, bulls were pleased to see the weekly win. We had begun the week following the previous Friday’s plunge and after a lot of volatility, it was constructive and encouraging to finish the week with a weekly win for the majors.

The Fed meets next week, and there will be an interest rate decision Wednesday afternoon. The buzz is that the Fed will hold off on a rate hike, mainly because the “data” has just not been all that strong. The University of Michigan consumer sentiment number for September came in Friday at 89.5 versus the expected 90.5, which might have been the final piece of negative economic data that will keep the Fed on the sidelines when it makes its rate decision on Wednesday. Retail sales for August were also weak as we saw on Friday, so that also added to the “no hike” consensus for the Fed.

The Federal Reserve has telegraphed strongly that it wants a rate hike, mainly to give it more “tools” if something were to go wrong in the economy in the weeks and months ahead. The problem with a rate hike now is that we have a November election coming soon, and we all know that the S&P 500 fell 10% following the small quarter point rate hike last December. Without the uncertainty surrounding the election, the Fed might easily have had a “green light” for a rate hike, but it is looking like a closer race than we thought, so we can likely see the Fed stand down next week and wait until December for a possible hike.

Friday’s pullback in stocks left the S&P 500 at 2,139; below its 50-day moving average of 2,153. This is a tough technical spot for the S&P 500. The S&P 500 is still solidly above its 200-day moving average of 2,090, so that is a plus, but having it stuck below its 50-day moving average suggests that the S&P 500 is still not out of the woods from a technical standpoint. Apple helped a bit this week, but the broader stock market and the S&P 500 in particular, have some challenges ahead as we head into the last half of September and the often troublesome month of October.

Had we been seeing all-time market highs for the major indices right now, a Fed rate hike would have been a no-brainer. We have been seeing enough negative economic news, though, that, as we have said, a rate hike seems extremely unlikely next week. In a strange way, this scenario is bullish for the stock market in that it does not have to worry about rate hikes until December. So does this pave the way for an autumn rally? We shall see, but we did not see that happen on Friday as buyers retreated and we closed out the week on a negative note.

The upcoming week will be an interesting one, and it will be interesting to hear what the Fed has to say. Fed watchers put a Fed rate hike at a 15% probability. So once again, a rate hike on Wednesday seems unlikely. That should help the stock market resume its upward bias, so stay tuned and we shall see what happens. That said, the Gorilla wishes each and all a relaxing weekend. Fall is right around the corner, so have a great weekend watching the leaves begin to change. We will be back in action on Monday!

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