State of the Stock Market Analysis for the Week Ending on November 12, 2017 (Flat and Mixed Close Denies 9-Week Streak 11-12-17)
Bulls were hoping to keep the eight-week winning streak for the major indices in place, but the stock market was unable to hit the nine-week mark. We had a flat and mixed close on Friday, with the Dow and S&P 500 slightly lower and the Nasdaq up by about one point. For the week, the Dow was down by 0.5% and the Nasdaq and S&P 500 were down by around 0.2% each. We are still holding near all-time highs, though, which could pave the way toward new all-time highs as we await the Thanksgiving Rally, the Santa Claus Rally or the New Year’s Rally, which we all know could be on the way soon. Yes, that might sound optimistic, but this is that time of year when the stock market tends to do well.
The problem with “this time of year,” however, is that it has been almost a year that tax reform, deregulation, and infrastructure spending bills were supposedly “on the way.” The stock market began to rally following President Trump’s upset win on November 8, 2016, and the thought was that a fresh administration would hit the ground running with all kinds of new legislation that would fire up investors and send the stock market soaring. The amazing thing that happened this year was that after failing at health care reform, the new administration had no major reform or legislation passed all year. Amazingly enough, the Dow Jones Industrial Average has gained 28% since the election, and that has few bulls complaining.
So, how can we have had such an amazing stock market rally when absolutely nothing got done in Washington, DC all year? President Trump gets a lot of heat, and his approval ratings are low for a first-year president, but approval ratings for Congress are far lower than the President’s ratings. Voters are unhappy with a Congress that has an approval rating at an all-time low of around 12%, but yet again, the Dow has rallied 28%. Both parties are frustrated with all of the distrust and divisions within Congress, and oddly enough, there is even infighting among the individual parties. Washington cynics are thinking it might be best for the economy and the stock market if Congress simply stays on its winter vacation well into 2018.
We all know that Congress will be back, though, and with this past week’s election wins by many Democrats, the divisions and lack of cooperation will likely continue into 2018, which, by the way, is a midterm election year. Tax reform was in the spotlight over the past month, and it looks as though passage by Thanksgiving or Christmas is unlikely. There has even been talk of tax cuts not going into effect until 2019! Again, maybe getting nothing done in DC will keep this current stock market calmly edging higher straight into the November 2018 midterm election. For the bullish camp, sometimes “less is more” in terms of Washington, DC, so we will see what happens.
One of the interesting business stories this past week was the earnings shortfall from Disney (DIS) on Thursday. The stock fell hard in after-hours trading on Thursday but rallied on CEO Bob Iger’s conference call after the bell. It helped Disney stock bounce back, and DIS closed up 2% on Friday. The problem with Iger’s comments, however, was that he made it clear that the “House of the Mouse” will aggressively milk its Star Wars franchise as much as possible. Disney paid $4 billion to George Lucas, so profits are key now for Disney. Iger said that there would be an entire new “trilogy” that will follow December’s much-anticipated film, “The Last Jedi.” This is good for profits, but some Star Wars purists are worried that it will dilute the Star Wars brand too much. We shall see what happens.
In economic news on Friday, consumer confidence for November fell to 97.8, and that was below expectations of 100.7 and the previous reading of that same 100.7 number. While this decline showed that consumers were easing back in confidence a bit, it was still a fairly solid number that proves consumers are still holding up well. That said, the Gorilla wishes each and all a Happy Veterans Day and a relaxing weekend. We are in the home stretch of 2017, and with solid earnings news and decent economic news, we likely have in place enough positives to end the year on a positive note. Again, have a great weekend, and we will be back in action on Monday!
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