State of the Stock Market Analysis for the Week Ending January 29th, 2017Ā (Week Ends On An Upward ClimbĀ 1-29-17) All You Need Is Jobs

It took a little while, but the Dow Jones Industrial Average finally moved above 20,000 to close out the week at a new lofty level. Its new all-time high is 20,125, and it closed out the week at a healthy 20,093. Bulls were worried that we would spend time zigging and zagging above and below that key level, but it looks as though this week’s upward surge might be a permanent plateau that will at least turn into a solid psychological level of support. Friday was flat and mixed for the major indices, but for the week, the Dow rose 1.3%, the Nasdaq gained 1.9% and the S&P 500 lifted by 1.0%.

The week’s gains came despite the political drama that played out in Washington DC this week, as President Trump and his crew went to work in a big way. Executive orders, confirmation hearings and general disagreements between the two parties seemed to be the theme, and it looks as though that sort of atmosphere will continue into the future. That might be upsetting for an already divided political arena, but investors did not seem all that concerned as we saw all-time highs this past week for all three of the major indices.

The one Friday economic news item that may have weighed on Friday’s stock market performance was the ugly fourth-quarter GDP report that showed a paltry 1.9% growth rate. Economists were looking for a 2.2% growth rate, which was markedly below the 3.5% we saw for the third quarter. Bulls were hoping for GDP to at least top the 2.2% level, especially since a better-than-expected number would have helped give a “seal of approval” to the impressive post-election rally we have seen since November 8th.

The rally is continuing, but it definitely needs strong economic and earnings news to support these lofty levels. We did see a bit of weakness in new home sales for December, as the annual rate fell to 536,000 from November’s 598,000, which was also below expectations of 595,000. One month of cooling in new home sales is not a big event, but it is one area that we will keep an eye on in the months ahead. The University of Michigan consumer sentiment number, on the other hand, did rise to 98.5 versus the expected 98.2 and the previous 98.1 reading, so we did get some positive news to close out the week.

As for interest rates, the 10-year U.S. Treasury pulled back from its recent 2.62% level to its Friday close of 2.48%, as capital flowed toward “safe havens” following tensions with China and Mexico over future trade policies. Investors are not quite sure where the new Trump initiatives will lead, so these concerns may have kept money moving toward Treasuries rather than into the stock market. Home mortgage rates are tied to the 10-year, so in a sense, this could help the housing market by keeping mortgage rates at their still very low levels.

The Federal Reserve does not meet until March, so the Fed Heads are off the radar of most investors. This lack of attention to the Fed comes despite Janet Yellen’s and Jeffrey Lacker’s recent comments that the Fed might raise rates three times in the upcoming year. We will deal with the Fed next month, and given the “non-event” that the December rate hike was, the stock market seems ready to take a March rate hike in stride. In addition, as long as the economy remains buoyant, a rate hike would most likely be welcomed as it was in December.

Earnings season has been good but not great, and roughly three-fourths of companies are topping estimates. The companies that are falling short, however, help explain that maybe the fourth quarter was not as strong as economists had expected. Consumers are holding up well, though, which should bode well for whatever earnings and economic numbers we will get in this first quarter of the New Year. We still have two trading days before closing out January, so bulls are hoping for a strong finish to the month. That said, the Gorilla wishes each and all a relaxing and restful final weekend of January. We will be back in action on Monday!

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