Only a Constitutional Amendment Away

Investors have another earnings heavy week with continued monitoring of President Trump’s Executive orders. On the economic front, we have University of Michigan Consumer Sentiment.

Earnings: Earnings have now seen over 270 companies of the S&P 500 companies report 4th quarter earnings. 67% have beaten earnings expectations with 48% beating revenues according to Thomson Reuters I/B/E/S. We are still below the last 4 quarters averages on the top and bottom lines. However, earnings are above the historical average. This week has 80 S&P 500 companies and 2 Dow 30 components expected to report Q4 earnings this week. We will continue to see individual stocks have huge price swings if a company’s earnings outpace or fall short of what the street expected.

Tax Reform: The markets have been going higher since the election in hopes of Congress and the President finally reforming the nation’s tax laws for the first time in 30 years. So far, President Trump has been busier getting into arguments with the Australian Prime Minister, the Mexican President and Arnold Schwarzenegger. Since the Governator is unable to switch roles with the Donald, as he’s proposed, investors are hoping the President will continue with his campaign promises and get to work to lower taxes. The markets have been trading rather sideways since mid-December, when the Fed raised interest rates for the only time last year. If Trump and Congress do not start talking about details for tax reform and keep pushing it off, we are likely to see the markets fall lower, the US Dollar lower, financials go lower and Treasury yields go lower. In this scenario, gold is likely to go up.   

Wild Card Trump: Investors will continue to watch Donald Trump’s twitter page as his tweets continue to impact individual stocks or FX. Investors are now using programs that identify when President Trump tweets about a specific company or industry. The market will also continue to watch his executive orders. These executive orders have the potential to not only affect a sector but the entire market as his protectionist policies have sent airlines, leisure and tech companies lower. The tech world is concerned about these orders and their capability to recruit top talent and keeping them here in the US. The US Dollar has also gone down on the protectionist policies. Traders will continue to monitor the latest executive orders and the criticism they receive from the entire world. 

FOMC Members Speak: Two Fed members (Charles Evans and Stanley Fischer) are scheduled to speak this week. With the Fed not raising interest rates (no surprise there) and made minimal references to timing of interest rate hikes for the year, investors will be listening for any hints as to potentially lowering the forecasted 3 rate hikes for the year.

University of Michigan Consumer Sentiment: Market moving economic data is pretty quiet for the week except for Michigan Sentiment scheduled for Friday. Since the election, consumer sentiment has jumped on the hopes that Trump’s policies of reduced regulation and lower taxes will put more money in people’s pockets. If the reading comes in above expectations, traders will point to consumers still expecting tax reform and many regulations being suspended. If the reading comes in below expectations, traders will point to consumers getting anxious with President Trump taking his eye off the ball and not concentrating on tax reform or pushing it off. We would potentially see the markets go lower if the reading falls short while expect little reaction if above the expected reading.

This blog represents the view/opinions of the author and not those of his employer.

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