State of the Stock Market Analysis for the Week Ending July 23rd, 2017Ā (Solid Week for Market Despite Mixed Earnings NewsĀ 7-23-17)All You Need Is Jobs

We may have closed slightly lower on Friday, but it was a solid week for the broader stock market just the same. Earnings season is coming in well, but it is coming in mixed. Bulls were hoping for a blockbuster week for earnings, but for every Microsoft (MSFT) and Visa (V) win, we seem to see a lackluster showing from a big cap like General Electric (GE), which disappointed and was down 2.9% on Friday alone. The earnings season has been decent enough, however, to help the Nasdaq and S&P 500 touch all-time highs. For the week, the Dow was down 0.3%, the Nasdaq was up 1.2%, and the S&P 500 gained 0.5%.

This week was backed up by strong housing numbers, which helped keep investors in a good mood despite some of the mixed earnings news. Goldman Sachs (GS) had some earnings problems as the result of commodity trading losses early in the week. Although the Goldman disappointment set a subpar tone for the broader stock market, all three of the major indices are still hovering around all-time highs. We just seemed to lack enough catalysts for a big, upside breakout.

Bulls enjoy seeing the major indices break out to all-time highs in unison, but bulls also know that slow, quiet upside moves are ultimately preferable to wild upside breakouts that go on for days, weeks or months. That is the scenario we are witnessing now, even with the recent resurgence of the mega-cap (FANG) stocks. The FANGs helped the Nasdaq hit new highs this past week, and again that is fine with the bullish camp. This group spooked investors with their recent pullback, but the decline somehow reversed, and these leaders seem to have reasserted their upside momentum.

There are more and more comparisons being drawn with this ongoing bull market to the 1999-2000 bull market, when the FANGs of that era drove that amazing bull market. Back then, it was the likes of Microsoft (MSFT), Intel (INTC), Cisco (CSCO), and Qualcomm (QCOM) that powered the Nasdaq, so it is easy to draw similarities. The current FANG stocks are different in many ways, but in terms of P/E ratios, the FANGs are fairly pricey. We will see what happens, but remain cautious when you hear that timeless phrase about how “this time is different.”

We hear from Janet Yellen and the Fed next week, so it will be interesting to hear what the Fed Heads have to say. A rate hike seems very unlikely, but it will still be telling as to what the Fed has up its sleeve for the rest the year. The stock market seems ready for higher rates, and after a brief spell of weakness, the financials and the banks have been performing well against the backdrop of higher interest rates. The whole “normalization” of interest rates has been a long time coming, so maybe the financial markets will continue to act well even if short rates head higher.

As for the political scene, the stock market remains unfazed. If you had just watched political news shows over the past six months, you might have assumed the Dow would have been down by 5,000 points, but for some reason, we are flirting with all-time highs for the major indices (including the Russell 2000). It has been said for decades that a divided government is good for the stock market, but the new saying might be that a disastrous government might be even better for the stock market! Who knows?

We have a lot of earnings news out next week, and the main economic report we will be watching is next Friday’s GDP number for the second quarter. Economists are looking for 2.8% for the second quarter, which would be a big improvement from the 1.4% we saw in the first quarter. This is one of those “high-profile” numbers that would give this year’s stock market performance a “seal of approval,” so let’s hope that number does not disappoint. It’s summer, though, so the Gorilla wishes each and all a relaxing July weekend. We will be back in action on Monday. Have a great weekend!

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