S&P 500; US Indexes Fundamental Analysis – Forecast for the Week of May 1, 2017

U.S. equity markets posted strong gains last week, driven by solid first-quarter earnings reports that showed an improving economy and increased business capital investment. The markets were primarily boosted by technology and health care stocks. Telecoms and utilities bucked the trend, however, and closed lower.

In the cash market, the blue chip Dow Jones Industrial Average finished the week at 20940.51, up 1.9%. The blue-chip S&P 500 Index closed at 2384.20, up 1.5% and the tech-based NASDAQ Composite ended the week at 6049.72, up 2.3%.

 Forecast

Robust earnings should continue to boost demand for higher risk assets, however, issues over North Korea will continue to be a wildcard that could send investors heading to the exits if worries about military action against the nation escalate.

Last week, President Trump revealed his long-awaited tax reform plan and based on the price action, it was very disappointing because it lacked specific details. In my opinion, Congress is likely to agree to reduce tax rates, but there is very little chance that Trump is going to get everything he is asking. Legislation is also likely to be delayed so Trump’s tax plan as a source of investor motivation is likely taken off the table for now.

Based on investor reaction last week, I believe that investors are no longer putting weight in Trump’s ability to deliver his campaign promises and that seems to be okay with them as long as corporate America continues to over-deliver on revenue and earnings.

I don’t think it’s going to matter that Trump’s first 100 days are up and nothing major has been accomplished. This leads me to believe that stocks will continue to rise until the end of earnings season.

This week, the markets will be dominated by news from the U.S. However, investors should keep an eye on North Korea because of events that took place over the week-end. If the situation escalates, investors will sell stocks and move their funds to gold, the Japanese Yen and U.S. Treasurys.

On Monday, Treasury Secretary Mnuchin is scheduled to speak. This is important because he may talk about trade issues. Traders will also get the opportunity to react to the latest data on ISM Manufacturing PMI.

On Wednesday, investors will get the opportunity to react to the latest U.S. Federal Reserve’s Federal Open Market Committee’s interest rate decision and monetary policy statement. The central bank is not expected to raise rates at this meeting, but could give strong hints about the timing of the next rate hike in its monetary policy statement.

On Friday, the U.S. will release its latest report on Non-Farm Payrolls. The key number will be Average Hourly Earnings. It is expected to show a rise of 0.3%. Fed Chair Janet Yellen is also scheduled to speak on Friday.

Volatility may be down this week due to the Fed meeting and the Non-Farm Payrolls report so investors should watch for spikes in the market due to below average volume. The expected low volume could also cause over-reactions in the market. I do think investors will continue to support the uptrend, but without the same gusto we saw last week.

Investors may be a little nervous about buying strength at current price levels so a 2 to 3 day break would probably be welcomed. Keep in mind that last week’s rally saved the month. However, most of the earlier weakness could be blamed on North Korea and the French elections.

The final round of the election is not expected to be an issue, but investors should continue to watch the events out of North Korea.