State of the Stock Market Analysis for the Week Ending on May 13th, 2018 Stock Market Looking Forward To Summer Months 5-13-18)
Stocks closed out the week with five straight wins, as the Dow rose 2.3%, the Nasdaq rose 2.7% and the S&P 500 lifted by 2.4%. The Volatility Index (VIX) pulled back toward 13, which was a great development since it signals that fear levels are retreating in a big way. This paves the way for more upside in the days and weeks ahead, and that is an extremely positive development for investors. Earnings season was solid for the most part, which is a plus for the broader stock market as we head toward the rest of May and the summer months.
The price of oil spiked above $70 per barrel and the yield on the 10-year U.S. Treasury closed at 2.97%. These numbers remain bullish for the broader stock market, and that might be why we are seeing stocks rebounding from their recent correction. The major indices are back above their 50-day moving averages, and from a technical standpoint, the onward rise should continue. The economic numbers are good, so we shall see what happens in the days and weeks ahead.
In economic news on Friday, we saw May consumer sentiment come in at 98.8, which was slightly above expectations of 98.7 and on par with the previous 98.8 reading. Seeing consumers remain confident is a very optimistic sign. Consumers remaining in the game is a very good sign for the broader economy. Housing prices remain strong, and employment remains solid, which bodes well for the stock market.
The weekly jobless claims of 211,000 that we saw Thursday were below expectations of 215,000, and that marked a 49-year low. This is yet another excellent sign of a very strong economy. Job creation numbers we have seen recently have also been a plus, so in terms of employment, the economy is firing on all cylinders. That is another big positive for both earnings growth and the broader economy, and the recent bounce in stocks reflects these very positive numbers.
Politics in DC remain in the spotlight, and once again, politics do not seem to be affecting the stock market. President Trump has made more inroads toward peace in the Korean Peninsula area, but then again we are seeing increased conflict in the Middle East. The strange thing is that both regions do not appear to be affecting the stock market at all. That is good from a technical standpoint, so we will continue to monitor these flashpoint areas closely.
As for the Federal Reserve, it seems ready to launch into at least three rate hikes this year, but the stock market should be able to handle several rate hikes without a problem. Keep in mind that we are still seeing the Fed and Jerome Powell simply “normalize” rates back to where they were nearly ten years ago. That said, the Gorilla wishes each and all a relaxing May weekend. We will be back in action on Monday, so stay tuned!
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