State of the Stock Market Analysis for the Week Ending on June 24th, 2018 Week Closes Mixed and Flat 6-24-18)

All You Need Is Jobs

Tariffs and trade wars were once again in the picture on Friday as the EU and the U.S. focused on cars. The ongoing trade issues are relatively small in terms of the GDP, but they continue to be in the spotlight. Tariffs on new Mercedes Benz cars are probably not great, but the reverse tariffs on U.S. cars in Europe are probably not helpful for free-markets and global growth. The U.S. market had a rough week, but it closed out Friday flat and mixed. For the week, the Dow ended down about 2%, the S&P 500 ended 0.9% lower, and the Nasdaq finished 0.3% lower.

It was a reasonable decline since there are a lot of variables in play, and bulls are thinking that after seeing the Dow Jones Industrial Average buck its recent downturn, we might have set the stage for a market bounce. The Nasdaq and the Russell 2000 are still holding their ground near recent all-time highs, and the trade worries have weighed heavily on some of the big industrials like Boeing (BA) and Caterpillar (CAT). Either way, it was a plus to see the Dow bounce on Friday.

Economic numbers this past week have been mixed, but they have mostly been strong. Weekly jobless claims have remained at 40-year lows, and it is always a plus to see the job market remain strong. Housing numbers were good this past week as well, which is also another plus for the broader economy that continues to hold up amazingly well. There are some reports that show weakness, but the economy seems to be in a good place as we head into summer.

Jerome Powell and the Federal Reserve seem ready, willing and able to hike rates further the rest of the year, but oddly enough, the stock market seems willing to handle those hikes. Normalization of interest rates has been a Fed goal for nearly 10 years, and maybe it will have a positive effect on the stock market. Normally, Fed rate hikes torpedo the stock market, but we are in a different stock market where rate hikes make sense contrary to the past. We shall see.

Politics are in full bloom right now, and the whole DC picture might settle down a bit as we head toward the midterm elections in November. The stock market is, as usual, ignoring DC, and that is a plus. This is a bullish sign, as this aging bull market continues to hang tough. Tech continues to drive this market higher, so we will continue to enjoy the lift from the “FANGS.” It would be great to see a bounce in some of the financials.

We have an interesting week ahead, and after a tough week, we are due for a bounce. The Gorilla wishes each and all a relaxing June weekend. We have a lot of economic news out next week, so we will see what happens. It could be an exciting summer, so stay tuned!

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