State of the Stock Market Analysis for the Week Ending October 11th, 2015 (Rate Hikes on the Back Burner 10-11-15) All You Need Is Jobs

Despite some shaky earnings numbers from the likes of Yum Brands (YUM) and Alcoa (AA) this past week, the major indices closed out Friday on the upside and finished solidly higher for the week. Bulls were thrilled to see the S&P 500 rise more than 3% for the week, which is quite a feat for early October. This is supposed to be a rough and tumble month for the stock market, but we are somehow seeing confidence and optimism return from the investor class. The recent worries about a Federal Reserve rate hike are on the back-burner now, so that has likely helped propel this ongoing stock market lift.

Last week’s dismal employment report showed that the U.S. economy is not as healthy as we had thought, and Janet Yellen and the Fed know this truth all too well. The Fed’s minutes from its September meeting showed that the Fed was very concerned about China, global GDP growth, and the turmoil that we saw in financial markets in August and September. The Fed was nervous enough then to not hike rates in September, and with last week’s employment report, the likelihood of a 2015 rate hike seems very low.

We are back in that old and familiar “bad news is good news” mode, and that seems to be what is driving this current market rise. The problem with bad news being good news is that it can eventually run out of steam. Bulls would probably prefer to have seen robust employment numbers last week that would have given the Fed another chance to raise rates by 25 basis points. Short rates are still at zero, and that is historically not normal. The Fed has broadcast for months and months that it wants to “normalize” rates, but it is obviously terrified to do so.

That is not to say the Fed is making a mistake right now, but it does show a Fed that seems quite uneasy with rocking the apple cart. A September rate hike might have gone unnoticed, and global financial markets probably would have held up fine. Critics of the Fed have been quick to point out that the September rate decision seemed more focused on helping China rather than helping the domestic U.S. economy. The Fed’s decision worked, though, and U.S. and global stock markets have rallied enough to put investors at ease.

It is still October, though, and we all know that October could still become a typical “October.” Earnings season is the key right now, and while we have had a few disappointments so far, the next couple of weeks should answer a lot of questions. The fears of a global GDP slowdown are front and center, and investors are watching the numbers of global multinationals closely. These numbers will likely play into the Fed’s late October rate decision, but even if global numbers are strong, the Fed seems unlikely to raise rates at its meeting.

It has been a tough year for the stock market, and oddly enough, we could be setting up for an end-of-year rally. The pullback and volatility we witnessed in August and September has likely run its course, and a lot of the uncertainty is behind us. The key now is for earnings to be strong enough to alleviate the global growth fears, and the other key is for the Fed to remain clear about where it stands concerning interest rates. Watch for various Fed officials to comment soon on how rate hikes are on hold until after New Yearā€™s Day.

It is always good to check in with a market leader, and Apple (AAPL) is still bouncing back from its recent downturn. It closed Friday at $112, which leaves it still below both its 50-day moving average of $114 and below its 200-day moving average of $116. Apple has its work cut out for it to get back above its all-time high of $134.54. However, if Apple can rally, it could pull the rest of the market with it, since at its size, it sort of IS the market. Apple is also a prominent part of all three major indices.

The Gorilla wishes each and all a wonderful weekend. Autumn is in the air, and it is great to see October acting relatively calm in the stock market. Halloween is on the way, and the Gorilla is still working on costume ideas, so any thoughts are welcomed. Again, have a great weekend, and we will be back in action on Monday!

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