State of the Stock Market Analysis for the Week Ending February 28th, 2016 (The Stock Market Stalled Out 2-28-16) All You Need Is Jobs

The good news this week was that the major indices held on to the gains we have seen following their lows from just over two weeks ago. The bad news was that even with the snap-back rally, the stock market has stalled out, and Friday’s flat and mixed close was a bit of a disappointment for the bulls. It was a winning week, though, as the Dow rose 1.5%, the Nasdaq gained 1.9% and the S&P 500 advanced 1.6%. The price of oil was only slightly lower on Friday. Having crude finish the week close to $33 per barrel helped calm global financial markets, which are still recovering from recent fears that sent the price of oil well below $30 per barrel. Outside of Wednesday’s early-morning plunge, though, the stock market did recover and notch some decent gains for the week.

We closed out the week with the Dow and the S&P 500 back above their respective 50-day moving averages of 16,567 for the Dow and 1,940 for the S&P 500, and that was an encouraging way to end the week. The Nasdaq closed on Friday at 4,590, which puts it within striking distance of its 50-day moving average of 4,618. It would be another plus from a technical standpoint if the Nasdaq could regain that level as quickly as possible. We did see the major indices briefly dip below their August lows two weeks ago, but the bounce we have seen in the past two weeks has put the majors in a solid position, that is, of course, if we can see some additional upside follow-through in the days ahead.

There had been a lot of speculation about Fridayā€™s revised fourth-quarter GDP number. Not only did the 1.0% rate top economistsā€™ estimates of 0.4%, but it was also above the previous 0.7% reading. However, 1.0% is not exactly the sign of a vibrant and growing economy at all. Throw in the lackluster consumer confidence numbers we saw this week, and you can make a pretty good case for why we began this year with a roughly 10% correction in the S&P 500. The University of Michigan’s Consumer Sentiment report came in for February at 91.7, and while it topped estimates of 90.7, it still showed that consumers are not overly upbeat about their financial picture in an economy that could definitely use a boost.

The Federal Reserve’s 25 basis-point rate hike in December seems to have put global financial markets on edge, and it was a plus this week to hear various Fed Heads talking up a more “dovish” scenario on further rate hikes in the U.S. anytime soon. The buzz is that the Fed will wait until September at the earliest for any additional rate hikes. Across the pond, Mario Draghi and the ECB have hinted at more QE and/or lower rates in Europe when the ECB meets in two weeks, which has helped rally European markets as well. Central banks can continue to work their short-term magic, but they still need their economies to grow, so we will wait and see what happens in the EU.

Janet Yellen and the Fed have said that the Fed would remain “data driven” with regard to any additional rate hikes, but the “data” continues to show a softening economy. There are some positive blips here and there, but the overall economy still looks weak. Some economists and strategists have said that the stock market decline we saw in January and February has already priced in three or four rate hikes by the Fed, so maybe the Fed can back off on comments about further rate hikes. It has already begun to taper its comments on hikes, and that might have helped spur the recent bounce we have witnessed in equity prices. Stay tuned as we wait for the Fed’s mid-March meeting.

One of the “wild cards” out there right now is the U.S. Presidential election. What is called “Super Tuesday” is right around the corner (actually this Tuesday), and it could solidify who will be the nominees for the Presidential election. It is looking as though a Hillary Clinton versus Donald Trump presidential race could be in the cards, and the jury is still out on what that could mean for the stock market, or global financial markets for that matter. There is a lot of “uncertainty” with this election, and we all know that markets abhor uncertainty. For that reason, we could see markets remain volatile straight into the November election. It is interesting to note that the Lehman meltdown occurred in October of 2008, just a month ahead of the Presidential election that ushered in President Obama.

This election should make for a challenging year for investors regardless of who is nominated. The New Year began with a surprising selloff in the stock market, but the recent bounce has been a calming relief. Bulls are hoping that we will see higher highs in the days ahead, and with oil prices stabilizing that could be the case. The Gorilla wishes each and all a restful winter weekend, and we will be back in action on February 29th for Leap Year Monday. Again have a great weekend!

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