State of the Stock Market Analysis for the Week Ending June 12th, 2016 (Yellen Couldn’tĀ Increase Confidence Levels 6-12-16) All You Need Is Jobs

There were hopes that we could close out Friday with a win, but that was not to be the case, as all three of the major averages finished lower. The overall week was mixed and flat, with the Dow up 0.3%, the S&P 500 down by 0.2% and the Nasdaq 1.0% lower for the week. Bulls had hoped that Janet Yellen’s comments earlier this week would help confidence levels, but that did not happen. Yellen did reassure markets that last week’s weak jobs report may have been a blip, but that was not enough to bring buyers back into the stock market in any major way. The Dow finished the week back below 18,000 and the S&P 500 was below 2,100, so that was a tough way to close out the week.

The price of oil fell by more than 3%, and the yield on the 10-year U.S. Treasury dropped to 1.62%, which shows that there are concerns on the world financial stage. The buying of Treasuries shows that capital is looking for “safe havens,” and that is likely why the stock market has backed off a bit this week. We continue to get mixed economic news, which has kept investors on the sidelines. And, until we see better news, more upside for stocks will be a challenge. Last week’s jobs report is still on investors’ minds, and despite a week of decent-looking numbers, we are continuing to see hesitancy in the stock market.

In economic news on Friday, the University of Michigan showed consumer sentiment slip to 94.3 versus the previous 94.7 reading. Thus, it is clear that confidence levels are not improving. This is not bad news, but it adds to the worrisome chorus we are hearing about the state of the broader economy. This ongoing parade of “mixed news” is weighing in heavily, and despite reassurances from Janet Yellen, the broader stock market is saying that it needs better numbers if it is going to continue to head higher from these elevated levels. Having the Dow stall out at the 18,000 level and the S&P 500 fail to hold 2,100 disappointed investors this week, and it is a rough way to head into the summer.

So what does this mean in terms of a July rate hike by the Fed? If the stock market had continued to head higher this week, a rate hike in July might not have been that big of a deal. A June rate hike seemed impossible given last week’s jobs report, but a July rate hike was still on the table. Janet Yellen made a good case for a rate hike, and she reassured us that one bad jobs report was not that worrisome. Seeing the stock market close out the week with a loss raised concerns that maybe things were more negative than Yellen thought, so this puts bulls in a tough spot as we head toward the Fed’s meeting next week. The Fed wants to raise rates, but in some ways, it has its hands tied.

The political landscape is up for grabs, and we have two big conventions on the way that promise to offer us a lot of controversy. Financial markets usually absorb political divisions well, so it is a plus to see markets giving the political scene a collective shrug. That is not to say that we could get some drama from the upcoming conventions, but it does say that politics rarely upset U.S. markets. The “Brexit” vote in England later this month is another story, though, so we will keep a close eye on Britain’s vote to leave the European Union. That is a vote that could really upset global financial markets.

Summer is right around the corner in the U.S., though, and bulls are hoping that we can see some sort of semblance of a “summer rally” that can lift the major indices toward higher highs. The “stall out” we saw this week has been disappointing, and the bulls are hoping that we can get confidence levels to return soon. Economic news remains good, but not great, so any sort of catalyst next week would be a plus. That said, the Gorilla wishes each and all a relaxing weekend as we head toward summer. We will be back in action on Monday. Enjoy the weekend, and maybe we will get that bounce next week.

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