The Markets Keep Going Up and At Them

Investors will stay on their toes as they monitor loose cannon Trump’s possible Tweets, media bashing (and entertaining) press conferences and possible executive orders during the Holiday shortened week. On the economic calendar, we are relatively quiet with Michigan Sentiment and the FOMC Meeting Minutes.

Earnings Last Hurrah: Earnings winds down as we have now seen over 400 companies in the S&P 500 report for the 4^th quarter. This week has 52 S&P 500 companies and 2 Dow 30 including Walmart (WMT) and Home Depot (HD) announcing earnings. 4^th quarter earnings are on pace to increase 7.5% from the year ago period. The forward 4^th quarter P/E’s ratio for the S&P 500 is now at 17.9. This is above the historical average.    

Low Volatility Continues: The S&P has now gone 45 days without a 1% intraday move: The longest streak in history. Even with the circus in DC, volatility stays low and the markets continue to go higher on the hopes of tax reform. The VIX ended this week at 11.6. Investors will watch to see if the VIX stays at the historically low level. There are no known catalysts coming up that could push the VIX up, but good ol Trump can still surprise us.

FOMC Members Speak: This week Fed members (Neel Kashkari, Jerome Powell, Robert Kaplan and Patrick Harker) are scheduled to speak this week. Investors will be looking for any hints as to rate timing and also potential thoughts on future monetary policy with fiscal policy potentially changing later this year. We will also continue to listen to their thoughts on who they think the President will appoint to the Fed with the recent resignations.

FOMC Meeting Minutes: On Wednesday (2/22) the latest FOMC Minutes before are released. Investors will be looking closely at the language of the minutes to see what may have changed from the previous FOMC meeting. They will also look for any contradictory statements from Janet Yellen’s testimony last week before the Senate Banking Committee and House Financial Services Committee.  Unless we see significant language changes, expect limited movement in the broader markets. As of this moment, the markets are predicting a 40% chance of a rate hike in March. Financials should react on any clues about the timing of a rate hike. The US Dollar will also likely react as a delay in raising rates may weaken the Dollar after Janet Yellen’s testimony last week.

Manufacturing PMI: PMI readings from across the globe are due out this week. Traders will watch these readings as to see if the Trump rhetoric around protectionist policies resonates. Any unanticipated jump in a reading could send the markets higher and their respective currency stronger.

Border Adjustment Tax: Investors will listening to the latest rhetoric out of DC in regards to tax reform and a potential border adjustment tax to help pay for the reduction in corporate taxes. Should we hear more about this, or if a border tax gets some traction, we can expect to see retailers go lower. Americans are so used to paying as little as possible for clothes that a tax on imports sold at retail stores will obviously be passed on to the consumer, which will likely change their shopping habits.