Stocks closed Friday flat and mixed, but they did hit new all-time highs this week. Earnings season is underway, and it will be interesting to see how it unfolds. For the week, the major indices did pull off some mildly impressive gains. The Dow was up 1.7%, the Nasdaq was up 1.5% and the S&P 500 was up 1.2%. As we have noted, the slow and steady upward move in the major indices is broad-based, and is a very healthy sign for the stock market as we head deeper into the depths of October.
We are approaching the “Black Monday,” 30-year anniversary of October of 1987 crash, which has many market watchers feeling a little nervous seeing the stock market at all-time highs. Back then, the Federal Reserve was not the Federal Reserve of today. The modern Fed would step in to sooth worries in a blink, so that is a plus. The economic numbers we are seeing today are good, and earnings season looks solid, so a repeat of 1987 seems very unlikely.
Friday’s government report showing 33,000 jobs lost was surprising versus the 75,000 gains that economists had expected, but the fall seemed to be from jobs lost because of hurricanes Harvey and Irma. We have a possible hurricane Nate on the way toward New Orleans, which could further exacerbate jobs problems in the Southeast. The overall jobs report was solid, though, and seeing the unemployment rate fall to 4.2%, from 4.4%, was a good sign that the economy remains strong.
As for the Federal Reserve, the speeches we heard this week have been fairly dovish. The Fed seems in no hurry to raise interest rates. The Fed has some cover from the hurricane job losses to hold off on interest rate hikes. It is a conundrum for Janet Yellen and the Fed right now, in that they want to raise rates toward “normal” levels, but they also do not want to “rock the boat” and scare a stock market that continues to keep edging ever higher. Why try to fix what is not broken?
Earnings season is kicking off, and the test is for companies to show that their elevated stock prices are valid. Many stocks have scored this year, and the test is in the earnings for the second quarter. Analysts have been ratcheting up estimates, so bulls are hoping that we see some better-than-expected numbers. Good numbers would validate our heightened valuations in equities, so we will wait and see what happens in terms of earnings news.
The political sphere remains in play, and the tax cut objective is on the radar. Tax reform was one of the issues that rallied the stock market earlier this year, but DC being DC, it has taken longer than expected. Infrastructure spending has also been on the back burner, so we will have to wait and see what the President and the Congress can get moving in the months ahead. Any move toward this sort of legislation would likely be great for the stock market. That said, the Gorilla wishes each and all a wonderful October weekend. We will be back in action on Monday!
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