Stocks Closed Lower Last Week, Market To Assess Whether Pullback Is Nearing Its End  Image: Bigstock Stocks closed mixed on Friday, but lower for the week. That makes it 3 down weeks in a row for the S&P and the Nasdaq. Since making their YTD highs just a few weeks ago, the Dow is off by -3.17%, the S&P is off by -4.78%, and the Nasdaq is off by -7.43%. But as I mentioned last week, that's good news. Because pullbacks like these are very common and healthy. Every bull market has them. Stocks usually pull back about -5% roughly 3-4 times per year. (A pullback is defined as a decline between -5% and -9.99%.) And pauses like these help refresh and strengthen the market before their next leg up. With stocks in the general range of your typical pullback, we could very well be near the end of this, and be ready to start heading back up. We shall see. Uncertainty over inflation and interest rates have been a key topic lately. But with the next inflation report two weeks away (PCE Index comes out on August 31), and the next Fed meeting more than 4 weeks away (September 19-20), the market will focus on other economic reports in the meantime. Even though some measures of the economy have slowed, others continue to show their resiliency. That includes the labor market. While that has finally slowed a bit, and wage inflation has moderated, the jobs market remains hot. And that continues to underpin the economy. Moreover, with personal incomes still hovering near all-time highs, that continues to fuel spending, which comprises roughly 70% of our GDP. And GDP continues to impress. Q1 came in at 2.0%, beating expectations which were originally pegged at 1.1%. Q2 came in at 2.4%, beating expectations for 1.5%. And Q3 (even though it's early), is expected to come in more than twice that amount. In fact, the latest estimate from the Federal Reserve Bank of Atlanta, via their GDP Now forecast, is estimating Q3 to come in at 5.8%. Outside of the U.S., there are concerns over China's slowing economy and possible deflation. But their slowdown might just be a blessing in disguise for the rest of the world, as it could help ease inflationary pressures elsewhere. China is still growing. But it's debatable whether they will be able to hit their stated goal of 5% growth this year. But that's fine. If China was heating up, it would further contribute to world growth outlooks and inflationary pressures. But as it stands now, the global economy is doing well. And was just recently upgraded by the World Bank and the OECD (Organization for Economic Cooperation and Development). And hopefully, by the time China's growth picks up (with more stimulus?), the rest of the world may have seen their inflationary pressures moderate even more. In the meantime, the U.S. economy is doing just fine. The jobs market remains robust. Inflation, while still too high, is easing. And we're nearing the end of the rate hike cycle. And that bodes well more for upside in the market. See you tomorrow,  Kevin Matras
Executive Vice President, Zacks Investment Research | 
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