State of the Stock Market Analysis for the Week Ending October 25th, 2014 (After Six Years, Bears Cheer Market Meltdown 10-25-14) 
What a couple of weeks it has been for both the bulls and the bears. The bears have been waiting for six years for a market meltdown, and the stock market came close to accommodating that view last week until we saw an amazing reversal that continued into this week and Friday’s close. The stock market bounce we just witnessed was one for the record books, and it made this October one to remember. Friday’s strong close was exactly what the bulls had wanted to see, and when the dust settled, it was a winning week for the bulls, with weekly gains of 2.6% for the Dow, 4.1% for the S&P 500 and 5.3% for the Nasdaq.
All of the worries about slowing global GDP, Middle East tensions and Ukraine were off the radar this week, and investors instead were focused on positive comments from the Federal Reserve and impressive earnings numbers. The cat was out of the bag with regard to the Fed, thanks to its “non-comment” on last week’s comments from James Bullard that it might reconsider ending the bond purchases that were set to end in October. Bullard’s comments sent stocks soaring, and then we had the “double-whammy” of enough impressive earnings numbers to light the fire under a stock market that had “corrected” downward by about 8% for the S&P 500.
The earnings parade began with Apple (AAPL) this week, and then the “real” economy numbers rolled in from traditional companies that included the likes of Caterpillar (CAT) and 3M (MMM). Friday’s rise was buoyed by numbers from the likes of Microsoft (MSFT) and Procter & Gamble (PG), and that capped a week to remember for the bulls. The six-year-old bull market suddenly showed that it is still alive and kicking, and as we closed out the week, the bullish crowd was singing and dancing. It was an impressive end to a week that sent most bears running for cover, so the key now is for stocks to keep this bounce in its upward motion to close out October strong.
There are still a lot of “wild cards” out there right now, and Ebola and the upcoming November midterm election are two wild cards on everyone’s “worry list.” The hardball nature of the political season is evident right now, but the mean-spiritedness is somehow not worrying investors much at all. The mantra of how a “divided government” means that nothing will change or ever get “fixed” has often helped the stock market, and we seem to be on track for yet more close elections and a continued “divided” government. Many political watchers agree that this is no way to run a government, but investors seem to like the idea that not much will change after the November elections.
Politics aside, we get to hear from the Federal Reserve next week when it announces its policy outlook on Wednesday. It will likely tow its ongoing line of “watching data” and monitoring the economy, but it will not likely say anything new or offer any new changes. It is election time, and the Fed likes to keep a low profile in terms of politics. No one complained when Mr. Bullard sounded a whole lot like the ECB’s Mario Draghi last week, and the bounce in the stock market was proof positive that the Fed has a “green light” to do anything and everything it wants in order to keep the economy vibrant no matter what the longer-term cost.
The small-cap Russell 2000 (RUT) is still on investors’ minds, and it made it back this week toward its 50-day moving average of 1,117 and actually closed at 1,118. The Russell 2000 is still slightly below its 200-day moving average of 1,126, but this week’s progress was a very constructive development. The buzz about the “Death Cross” where the 50-day moving average falls below the 200-day moving average is still on investors’ minds, so regaining its composure of its 200-day moving average would be a plus for small caps and the broader market in general in the days and weeks ahead.
Halloween is next Friday, and the Gorilla is still considering costume ideas, but even more important, Halloween means that October is behind us and we get to look forward to that historically-strong November-December time of year. October did provide some “thrills and chills,” but it did so quickly and quietly. The speed of the decline and rebound was astounding to say the least, but there are enough positives in place right now to set the tone for a bullish end to 2014. Earnings season was good but not great, and just seeing where the major indices are right now has bulls feeling optimistic for the final two months of 2014.
The Gorilla wishes each and all a relaxing weekend, and after the fast-paced October roller-coaster ride, a quiet weekend is definitely in order and welcomed. The ball is in the Fed’s court next week, so we will see what it has to say on Wednesday. Until then, join the bulls with a toast to a great week for the stock market, and we will be back in action on Monday. Mid-term elections are right around the corner, which should provide some clues as to which direction this great nation is headed, so stay tuned. Again, have a wonderful weekend!
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