State of the Stock Market Analysis for the Week Ending on May 27th, 2018 A Strange Week on Wall Street 5-27-18)

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It was a strange week on Wall Street as the recent rally stalled. Friday may have been flat and mixed, but for the week, the indices were still slightly positive. The Dow was up 0.2%, while the Nasdaq rose 1.1% and the S&P 500 added 0.3%. These were not that great of gains, but they did make for a generally positive week for the major indices. The small-cap Russell 2000 did hit an all-time high this week, which was another plus for the bulls.

The good sign for the stock market was the strong earnings we continue to see. Earnings are good, but they are not that great. It is keeping the stock market in a positive mode, though, and that helps as we head toward the rest of the year. We did get some moderate economic numbers on Friday, though, as April durable goods orders fell 1.7% versus expectations of a 1% decline, and March’s 2.7% increase.

In other economic news, it was great to see consumer sentiment for May come in at 98.0 versus expectations of 98.9 and last month’s 98.8 level. It is impressive to see sentiment holding up so well, especially with the stock market in a multi-month retreat. To have sentiment holding up so well with a tepid stock market is a very bullish sign, and that might bode well for a stock market that was looking for a reason to head higher.

The yield on the 10-year U.S. Treasury has recently topped 3%, and that was a gigantic worry for the bullish camp. It has pulled back to 2.94%. That does not seem all that threatening, so we will see what happens with longer-term rates. Even oil dropped more than 3% on Friday, so that, like long rates, takes a lot of pressure off the stock market. This means the stock market rally could have more upside legs, so we will see what happens in the months ahead.

The Federal Reserve has a lot of leeway in raising interest rates in the months ahead, especially since the 10-year Treasury is back below the 3% level. The market has rallied, and the Fed has a “green light” to raise rates multiple times for the rest of the year. Strategists and economists think that higher rates would be great for the economy and the stock market, so we will see what happens in the weeks and months ahead. Keep in mind that interest rates were near zero for almost ten years, so maybe it would a good thing to have higher rates. The primary beneficiaries from higher rates at banks would be CD and money market savers at the regional banks around the country that have paid traditional savers near-nothing for ten years.

The Gorilla wishes each and all a relaxing Memorial Day Weekend. Be sure to get those flags out early! We will be back in action on Tuesday, so again, have a great weekend as we head toward June and the rest of 2018.

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