State of the Stock Market Analysis for the Week Ending on October 1, 2017 (Month Ends with a Very Impressive Week 10-1-17)
While stocks closed out Friday with slight gains, it still capped a very impressive week. Software and device-maker Roku (ROKU) had a “red hot” IPO that doubled in two days, and that sort of IPO is always a bullish backdrop to a vibrant stock market. Except for the Dow, the major indices, including the Russell 2000 hit new highs and posted weekly gains of 0.2% for the Dow, 1.1% for the Nasdaq, 0.7% for the S&P 500 and 2.8% for the S&P 500. We are in a great position for more upside from a technical standpoint, so some good economic news and a solid earnings season might be just what the bulls would like to see.
The good news this week was seeing GDP for the second quarter coming in at 3.1%, which met expectations while topping the previous 3.0% reading. This was a plus because GDP and employment numbers have been disappointing all year. Investors are looking toward Friday’s government employment report for more affirmation, and economists are expecting 70,000 new jobs for September versus August’s 156,000. The unemployment rate is expected to remain flat at 4.4%, so we will see what sort of numbers unfold.
There has been a growing chorus about the future for the FANG stocks, Facebook (FB), Amazon (AMZN), Netflix (NFLX), and Alphabet/Google (GOOG). They bounced back this week, but many analysts that follow these stocks say that they are so massive now that they could be vulnerable. The mere thought of Facebook being questioned by the government about Russians advertising with fake accounts for the 2016 election is not a good sign for Facebook. The even more interesting thing is that the “growth-engine” teenager demographic is saying Facebook is for “old people.”
The main problem for the FANG stocks is that they have become so massive in terms of market cap, that antitrust and government-oriented actions are beginning to kick in. This happened to Microsoft (MSFT) during the Tech Bubble in 1999-2000, and it may have helped lead to the tech meltdown in 2000. This is not to say we are in a “repeat mode,” but when the government goes after a market leader or leaders, there can be unintended consequences. The question is how an $800 billion growth stock can remain a “growth stock?”
In the 2000 meltdown, Microsoft crashed with the rest of the tech bubble just the same. MSFT was facing monopoly accusations right before the tech collapse. Mister Softie took more than 16 years to get back to its all-time high stock price, but Microsoft is hitting on all cylinders right now. CEO Satya Nadella is very impressive, and he is running Microsoft quite well with its cloud initiatives and everything else. This shows that great companies survive and prosper, but sometimes it takes a long time.
There is a big push in Washington DC for tax reform, and if the “wizards” there can agree on some sort of tax relief program, it could be great for the stock market. That said, the Gorilla wishes each and all a wonderful weekend. October is here, and October could be a “rock and roll” month to the upside. The major indices seem to want to move higher, so we will see what happens. Again, have a great weekend, and we will be back in action on Monday!
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