With the Fourth of July falling on Tuesday this year, it was a light-volume, topsy-turvy week that saw a Thursday sell-off and a nice Friday rally. The major indices bounced back from that Thursday sell-off, and for the week, the majors closed out the mixed and flat. The big plus was seeing the S&P 500 get a springboard bounce from its 50-day moving average that it touched on Thursday to close out the week on a positive note. Friday’s bounce was fueled by a solid jobs number, and it was a great way to close out a week filled with a fair amount of apprehension.
The great news on Friday was the government’s June jobs report that showed 222,000 new jobs created. It topped expectations of 180,000 and May’s 152,000 number. This was a bit of a surprise because the ADP private sector jobs report for June showed 158,000 new private sector jobs versus May’s 230,000. The stock market and bulls were ready for a disappointing jobs number on Friday, but the 222,000 was a welcomed surprise. We have seen many disappointing economic numbers like GDP lately, so to get a strong jobs number obviously helped with Friday’s stock market bounce.
We are still hovering close to all-time highs for the major indices, and the year-to-date returns are impressive. The key right now is that we see affirming numbers that support these highs, and that was exactly what Friday’s jobs report did. Jobs growth is one of those “high profile” numbers like GDP growth, Thus, as long as these sort of reports can remain solid, the stock market should hold these high levels and possibly build upon them and make a run toward higher highs in the weeks ahead.
The Fed’s minutes that we saw on Wednesday from its June meeting showed that the Fed wanted to focus on decreasing its $4.5 trillion balance sheet. The Fed also stayed on course for at least one more rate hike later this year as well, so it was a plus to see the stock market absorb this information well. The European Central Bank (ECB) also was hinting this week about paring back on some of its stimulus programs, which had ten-year German bond yields heading higher as was the yield on the U.S. 10-year Treasury. Higher yields could eventually spook the stock market, but for the time being, a move toward the “normalization” of interest rates is not having much of an effect.
Earnings season for the second quarter is right around the corner, so it will be interesting to see if Q2 can top estimates. The stock market has priced in a lot of positives, and a strong earnings season would be just what our elevated stock market needs. Many strategists have said that with year-to-date gains of 8% for the Dow and S&P 500 and 13% gains for the Nasdaq, the stock market is saying “show me the money.” A better-than-expected earnings season combined with solid economic news might be the perfect mix to send the major indices back to new highs and an upside breakout.
As for the political division at home in DC, we are getting a much-needed break. For all of the Russian election problems at home, it was interesting to see President Trump meet face-to-face for the first time with Vladimir Putin yesterday. The planned 30-minute meeting went on for more than two hours, and some humorous journalists called the two leaders the “Axis of Testosterone.” Let’s hope that these two tough leaders found common ground, became friends, and accomplished something good. Maybe meeting face-to-face in Hamburg, Germany without three dozen lawyers listening will lead to a cooperative and productive relationship going forward.
As for the stock market, it is in a very bullish position. Investors are waiting for any sort of catalyst or reason to head higher. Earnings, economic reports, and policy initiatives would help. It looks as though health care is dead for the rest of the year, but the Trump tax cut plan and deregulation legislation are still on the table. This agenda is still on the table, and it would likely be a plus for the stock market, if enacted. That said, the Gorilla wishes each and all a wonderful weekend, and we will be back in action on Monday!
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