State of the Stock Market Analysis for the Week Ending on June 9th, 2018 Strong Economy At Home But Uncertainties Abroad 6-9-18)

All You Need Is Jobs

The stock market began Friday to the downside, as there were concerns that the G-7 meeting could lead to trouble. Recent saber rattling about trade, tariffs, and NAFTA had some strategists worried things might not end well, but it seemed to go well. The stock market closed out Friday with a win, and it capped a week that was a plus for the major indices. For the week the Dow rose 2.8%, the Nasdaq rose 1.2%, and the S&P 500 gained 1.2%. It was also a plus to hear Warren Buffett saying that he thought the economy looks very strong as we move forward.

For the week, though, we did see some volatility, but the major indices held up well, especially with Friday’s bounce. For the week, the Dow declined 0.5%, the Nasdaq rose 1.6% and the S&P 500 gained 0.5%. The worries about longer-term rates have subsided, and we saw the yield on the 10-year U.S. Treasury close out at 2.89%, which seemed to take a lot of the worry away for investors. The Volatility Index (VIX) had popped up this week, but it closed out the week at 13.46, and that showed that investor fears have retreated quite a bit. The jobs report was the key to Friday’s rally, so hopefully we can continue to see positive economic reports.

The Nasdaq and small-cap Russell 2000 hit all-time highs this week, and tech giants like the FANG (FAANG) stocks led the way. The race is on between the likes of Apple (AAPL), Amazon (AMZN) and Microsoft (MSFT) as to which one becomes the first trillion dollar market-cap company, and it is looking like each of them will pull this feat off sooner rather than later. The mega techs are all moving into many new parts of various businesses, whether it is “the cloud,” streaming, entertainment or anything else we can imagine, and it is impressive.

As for the economy, this past week’s stock market lift built on last week’s strong jobs report. With unemployment levels down to a decades low of 3.8%, it shows that the broader economy keeps humming along spectacularly. The fact that job openings recently came in at 6.7 million was another report that shows that workers are in big demand. Weekly jobless claims came in Thursday at 222,000 versus expectations of 225,000 and the previous week’s 223,000, and again, this was an impressive number.

So what could go wrong given the bullish vibe we saw this past week? Well, we do have the meeting this week of Jerome Powell and his Fed Heads, and the odds of an interest rate hike are very likely. With a booming stock market, a rate hike seems unlikely to have much of an effect. As we have said, higher rates would likely help regional banks and insurance companies, so as counter-intuitive as it feels, a rate hike by the Fed to “normalize” interest rates might actually send the stock market higher.

We also have the North Korean Summit in Singapore on the way, and that might also be a plus for the stock market. There have been Trump critics saying “winging it” might not work, and that the whole meeting needs more preparation. However, President Trump is President Trump, so it could very well work. Peace in that region would be a plus, so we will see what these two leaders can do. Rumors that ex-basketball star Dennis Rodman and Kim’s friend might attend is an unpredictable event, but in this modern age, if it helps, so be it.

It will be interesting to see what comes from the G-7 meeting, and President Trump continues to push the “America First” agenda. The theme is “free trade, but fair trade” for America, and through all of the debate, at least Trump is being straightforward on the posture of the U.S. Investors seem unconcerned, though, and that is always a plus that says there may be some disagreements, but we are not seeing the tariff wars turn into a blowout trade war. That would be the last thing we need, and it looks like a trade war is not in the cards.

We are heading into summer and the mid-term elections are right around the corner. The buzz is that Russian election scandal might cool down so it does not seem like it will affect the November election. That would be a plus for the stock market for the second half of the year, so maybe we are in for a strong market as we head into the rest of 2018. That said, the Gorilla wishes each and all a wonderful June weekend. We will be back in action on Monday so stay tuned and have a great June weekend!

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