It was a mixed week on Wall Street as we saw selling in big-cap tech and rotation into some of the sectors that have lagged throughout the year. We saw the stock market finish down on Friday, but the major indices did manage to rally from midday lows. For the week, the Dow Jones Industrial Average gained a respectable 2.9%, and the S&P 500 rose 1.5%, but the tech-heavy Nasdaq fell 0.6%. December started on a negative note, but December is often a strong month for the broader stock market, so bulls were not overly concerned about a slow start to the month of December that historically has an upward bias.
The stock market is still hovering around all-time highs, but it was interesting to see the FANG and semiconductor stocks pull back in a big way on Thursday. Bullish pundits had warned of too much “exuberance” emerging, but the weakness in some of the leaders of this bull market threw some water on the thought that the stock market was getting too “irrational.” Pullbacks are healthy in any long-term bull market, and once again, we will likely see a bounce in the days ahead. This year’s bull run has been calm and quiet, and it continues to receive little attention. That has most bulls optimistic about the market’s prospects into 2018.
Economic news on Friday was good, but it was not great. The ISM manufacturing number for November came in at 58.2 versus expectations of 58.0, and that was down from October’s 58.7. The Purchasing Managers Index (PMI) for November was 53.9 versus the October reading of 54.6, and while that was just a slight decline, it was still lower. We keep seeing decent economic numbers, which is a plus for the stock market. The economy is strong, but it is not exactly booming. There was an upward revision in GDP to 3.3% this past week, which is another positive for the stock market. This all but guarantees a Fed rate hike on December 13th, but the stock market should take that hike in stride.
Janet Yellen’s last meeting before Congress took place this past week, and she gave very upbeat testimony on the economy and the future outlook from the Fed. Jerome Powell steps in as Chief Fed Head in February, and by all circumstances, he seems ready to continue the Yellen standard of gradual interest rate hikes and a pro-growth agenda. In other words, he “will not rock the boat,” and that will likely help the stock market in a big way. Tax Reform should pass after getting watered down all year long, and the stock market will likely react well to that long-awaited legislation if it somehow passes before Congress leaves for Christmas vacation. (In case you missed it, Senate voted 51-49 overnight in favor of the Tax Bill, and the President hopes to have it signed before Christmas.)
December will likely be an interesting month given the strong gains we have seen in the stock market all year long. It is one thing to be bullish, but it is another thing to have a stock market at all-time highs. Having the Dow above 24,000 is spectacular, but how much more wind do those 30 stocks have in their sails? That is not meant to be bearish at all, but we all know that the Santa Claus Rally has already started. We had a down Friday, but the momentum seems in place for higher highs. Bulls are looking for a positive December, and that might be in the cards as we head toward the New Year.
Looking ahead, we will get some important employment numbers this upcoming week. The ADP private sector jobs number will be out on Wednesday, and we will see if November’s numbers can top October’s 235,000. Friday brings the government jobs report, and expectations for November are for 195,000. That would be below October’s robust 261,000, but a topping of that 261,000 would be a big plus for the stock market. Unemployment is expected to remain flat at 4.1%, so we will see what sort of number we get on Friday. That said, the Gorilla wishes each and all a relaxing December weekend. We will be back in action on Monday!
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