S&P 500; US Indexes Fundamental Forecast – September 28, 2016

U.S. equity markets rallied sharply higher on Tuesday as investors chose to focus on the outcome of the first presidential debate while ignoring a steep drop in crude oil prices. For the session, the December E-mini S&P 500 Index futures contract closed at 2152.75, up 13.00 or +0.61%.

The overall performances by the major cash market indices was solid. The Dow Jones Industrial Average rose 130 points. The S&P 500 gained 0.65 percent and the NASDAQ Composite finished 0.9 percent higher.

Traders attributed a better performance by Democratic candidate Clinton than Republican candidate Trump to jump-starting the rally by encouraging investors to buy higher-risk assets. The buying continued later in the session, supported by some strong U.S. economic data. The data showed investors that the economy may not be sputtering as much as the Fed assessed in its monetary policy statement released last week.

On the positive side, the Conference Board’s Consumer Confidence Index hit 104.1 in September. This beat the estimate of 99.0. It also exceeded the revised August figure of 101.8. This strong number may be a sign that investors aren’t too worried about the outcome of the election. The read was also the highest since the recession.

The September Markit Flash U.S. Services PMI also showed expansion, while the S&P CoreLogic Case-Shiller 20-City Composite Index rose 5.0 percent year over year, slightly below the expected 5.1 percent increase.

FORECAST 

After the release of the U.S. Durable Goods report at 1230 GMT on Wednesday, the focus for investors will shift on number of Fed speakers including Fed Chair Janet Yellen who is scheduled to deliver testimony before a House of Representatives panel on supervision and regulation. Investors will be tuned in to hear her views after the split FOMC vote on September 21, while trying to get a feeling as to how close the Fed is to raising rates in December.

We could hear hawkish talk from a pair of FOMC voting members that could shake up the markets today. Noted hawk and dissenters Loretta Mester and Esther George are scheduled to deliver speeches along with Federal Reserve Bank of St. Louis President James Bullard. All three are capable of moving the markets with their commentary. Traders should be looking for increased volatility especially if the Fed members comment on the timing of the next rate hike.

Other events on Wednesday include the U.S. Durable Goods Orders report. Core Durable Goods Orders are expected to fall 0.5% versus a 1.3% increase last month. Durable Goods Orders are forecast to fall by 1.0% versus a 4.4% increase. This report is due to be released at 1230 GMT.

Following the durable goods report, Yellen is scheduled to testify at 1400 GMT, followed by FOMC Member James Bullard at 1410 GMT. European Central Bank President will also deliver a speech at 1430 GMT. The day wraps up with a late speech by FOMC Member Esther George at 2315 GMT on Wednesday.

I’m expecting a volatile trading session with the strong possibility of a two-sided traded. I expect Yellen to be cautious and unclear in her testimony any comments regarding the direction of U.S. rates. The wild cards are FOMC Member George and FOMC Mester since they are both hawks and dissenters.