State of the Stock Market Analysis for the Week Ending on November 18, 2017 (Mixed Week Leaves Bulls Frustrated 11-18-17)
Following blowout earnings from Wal-Mart (WMT) and Cisco (CSCO) this past week, bulls were thinking that all-time highs for the major indices were in the cards for Friday’s action. The Nasdaq hit an all-time high on Thursday, and a Friday rally looked like a distinct possibility. Stocks began Friday lower, though, and while the Nasdaq was positive briefly, Friday turned out to be a dud of a day with all three of the major indices finishing slightly lower. That closed out a mixed week, which frustrated the bullish camp. For the week, the Dow was down 0.3%, the S&P 500 gained 0.1% and the Nasdaq was up 0.5%. On a positive note, the small-cap Russell 2000 rose 0.4%.
The big news was that the House of Representatives finally passed a watered-down tax reform plan that is now off to the Senate for a final “seal of approval.” The Senate will likely make a few final changes before passage, and then the long, hard road of “tax reform” will be done. Whether it is called the “tax cut bill” or the “tax reform bill” remains to be seen, but it has been a long year in the making. Tax reform was a major goal of the new Trump Administration, but we all know that the President might have legislative goals when elected, but Congress actually has to craft and pass new bills before the President can sign them.
With no major legislation getting passed all year, this tax bill could be the first major victory for a Trump Administration that has been bogged down by health care reform, Russian election scandals, and a generally uphill battle on every front. Gridlock in Washington DC has historically been a plus for the stock market, and this long year of political discontent has been no different. The infighting between the two parties has been ugly to watch, and even the disagreements within the individual parties have been surprising. What is even more surprising is having the S&P 500 up around 28% since the election just over a year ago, which speaks for itself since few bulls are complaining.
It has been an extraordinary run for the stock market, and it occurred all year long with little notice. Strategists and market historians have chimed in that we have seldom seen in history such a calm and cool, steady rise in the broader stock market with such low volatility. We are seeing a little “bubble-like” optimism kicking in, but then we get a down day like Friday that erases that optimism. The slow and steady upward trend seems to return after every pullback, so even with this last week ending flat and mixed, the odds for the upward trend to continue seems likely, especially since we are in the holiday time of year when the stock market historically performs well.
The tide rises and the tide falls, and it was interesting to see Dow components Cisco and Wal-Mart do so well this week. Wal-Mart seemed destined to be destroyed by Amazon (AMZN), but it somehow has survived and is even thriving right now as its stock hit an all-time high. Cisco was a driver of the tech bubble of 1999-2000, and after reconfiguring, “Cisco 2.0” has adapted, and it hit its highest stock price this past week since 2001. On the other end of the Dow Jones spectrum, however, is General Electric (GE), which has been a train wreck all year long, as it cratered to new lows this past week. GE was a “hot” growth stock in the 1990s, but it has essentially failed to adjust over the past few years.
GE has a new CEO following Jeff Immelt’s early departure, and whether it is good PR or just a smart buy, its new chairman bought 60,000 shares of GE stock this past week to the tune of just over a million dollars. The filings with the SEC are there, and this is not “insider trading” at all, but it is a big signal that the manufacturing giant might finally have bottomed. Jamie Dimon of JP Morgan (JPM) made a similar move when JPM had problems, a couple of years back, and that move turned out to be a good PR move and a pretty good investment for Jamie. Maybe the same outcome awaits GE’s new CEO John Flannery in the months ahead.
We are in the sweet spot of the year for the stock market, and bulls are ready and waiting for the “Thanksgiving Rally,” the “Santa Claus Rally,” The “New Years Rally” and the “January Effect Rally,” so that bodes well for the broader stock market. We have had some brief pullbacks, but with tax reform seemingly in place, the upward trend should continue. The Gorilla will have his annual banana stuffing recipe out next week ahead of Thanksgiving Day, so look for that delicious recipe. In the meantime, we wish all a relaxing November weekend full of family, friends and some pretty good football. We will be back in action on Monday, so let’s hope for a strong, year-end finish for a stock market that refuses to fall. Have a great weekend!
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