It was a tough week for the stock market, and while bulls were hoping for a big Friday lift, that was not what we saw. The major indices finished slightly lower on Friday, but overall, it was not that bad of a week. There was a lot of DC drama, there were a few earnings disappointments, and economic news was mixed. For the week, the Dow was down 0.8%, the Nasdaq was down 0.6%, and the S&P 500 lost 0.7%. We have had two big plunges over the past two weeks, and the good news is that each drawdown has found support. August has historically been a tough month, and this August is living up to that reputation.
The good news we did get on Friday was that the August University of Michigan Consumer Confidence Report rose to 97.6, from the previous 93.4. Economists were looking for a 94.8 reading, but the beat was a good sign, and it helped circumvent the DC infighting. If consumers are in a good mood, it helps the broader raw economy as we head into September and October. Confident consumers help drive the broader economy, and that will help us avoid bad housing and retail sales numbers during autumn, which is encouraging.
The problem with Washington right now is that any of the big tax cut and infrastructure proposals that investors were hoping for might be difficult to push through. These were the early hopes that helped send stocks soaring back in January, but the Congress went toward health care reform. The health care reform failed, and before we knew it, summer was here. Summer has a way of slowing Congress down, and all of the DC drama we are seeing has slowed Congress down even more. Tax reform is still on the docket, but it is just a matter of getting it done.
President Trump has had some infighting issues within his own Republican Party, which makes it difficult to have a united tax cut bill or domestic infrastructure bill cobbled together quickly and approved. These issues core issues got Trump elected, so if this can happen quickly after the summer break, it would likely fire up the stock market. We are still near all-time highs, and a two-week pullback is not the end of the bull market, but we could use some good news right now just the same.
One worrisome development for the bullish camp is the weakness in the small-cap Russell 2000. It was slightly lower on Friday and closed at 1,357, and that put it slightly below its 200-day moving average of 1,362. The Russell 2000 had recently dipped below its 50-day moving average of 1,406, so the small caps are showing some weakness. Small caps are great indicators of the strength of the broader market so we will keep a close watch on the Russell 2000 in the week ahead. Hopefully, we can see a bounce.
The political picture in Washington is likely to remain chaotic, but then again, it has been chaotic from the start. The stock market has been amazingly resilient all year, and that resiliency has been refreshing. We will get some feedback early next week, and the stock market seems ready to bounce back. We are once again back at the 50-day moving averages for the major indices, but the economy is strong, and investor optimism is hanging tough. Politics do not drive the economy, which is something to keep in mind as we head into the fall season.
The Gorilla wishes each and all a relaxing August weekend. The lunar eclipse takes place on Monday, and we all know that there are a lot stock pickers that follow the heavens. We have not researched these guys that much, but there are a lot of serious market watchers that do track this sort of stuff. Have a great weekend, and don’t stare at the sun on Monday! We are due for a bounce, so maybe the stars can align along with the sun, moon, and earth for a bullish bounce on Monday. Have a great weekend!
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