State of the Stock Market Analysis for the Week Ending May 28th, 2017 (S&P 500 and Nasdaq Hit All-Time Highs 5-28-17)
Domestic politics were sort of on hold this past week as President Trump visited the Middle East and Europe, but it looks as though the Russian issues will be back in the spotlight after the three-day weekend. Investors were in a great mood this past week, though, as we saw the S&P 500 and Nasdaq hit all-time highs on Friday. The Dow came close to its own all-time high as well, but fell a bit short. For the week, though, the major indices did well, as the Dow rose 1.3%, the Nasdaq gained 2.1%, and the S&P 500 lifted 1.4%. Traders and investors must have headed out of town as we saw a flat and mixed close on Friday.
What was strange about the week was seeing the Volatility Index (VIX) close out the week in single digits at 9.81. Some strategists get nervous when they see all-time highs in the stock market simultaneously occur with “fear” at such an extremely low level. The historical “Wall of Worry” that bull markets climb seems to have been replaced by the thought that the Federal Reserve or the ECB or the banks of Japan or China will step in and “do whatever it takes” if markets go south. This is not to say that the economy is shaky or that stocks are over-extended, but it is just something to keep in mind.
Last week’s nearly 400-point plunge in the Dow immediately drew out St. Louis Fed President James Bullard, who hinted heavily at waiting for a June rate hike and the possibility of renewed “quantitative easing” if anything went haywire. The rally that followed the Wednesday plunge continued into this week, and whatever Bullard said seemed to have worked pretty well. Swimming in the ocean or a lake is always safer with a lifeguard watching, but what happens if the lifeguard is missing? Yes, that is a summertime metaphor, but it is still something to think about with stocks so high and fear levels so low.
On the economic front, we saw first quarter GDP revised up to 1.2% versus the expected 0.9% and the previous 0.7%. A 1.2% rise is still not all that great, and it is a wonder where that initial 3.0% prediction came from about a month or so ago. But then again, big numbers seem to appear just when we need them. The number is then revised way down, and then we somehow always seem to beat the downward revision. GDP has been the monkey on the back of the economy all year, and it is amazing that the stock market can shrug off this number and continue to edge higher and higher.
In other economic news, durable goods for April fell 0.7%, which was not as bad as the 1.0% decline economists had expected, but it was down from March’s 2.3% increase. The University of Michigan Consumer Sentiment number for May finished at 97.1 versus the expected 97.7, and while May’s number was down somewhat, it is a number that shows consumers are still hanging tough. It could be strength in housing or even a stock market that refuses to buckle, but consumers are holding up extremely well despite domestic political turmoil and the various global tensions we continue to see.
We will likely see some interesting political developments in the days and weeks ahead, so remain ready for anything. The stock market is not overly concerned, and that is a positive sign for the bullish camp. Summer is right around the corner, and it is great to have a three-day weekend. The Gorilla wishes each and all a relaxing Memorial Day weekend, and remember to get those flags out and flying! We will be back in action on Monday, so in the meantime, have a wonderful long weekend!
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