S&P 500; US Indexes Fundamental Daily Forecast- Can the Rally Be Stopped?

U.S. equity indexes closed at record highs on Monday, following through on the strong momentum leftover from last quarter’s solid gains. The Dow was led higher by strong gains in Goldman Sachs. The S&P 500 Index was underpinned by health care and financials. The NASDAQ Composite posted the smallest gain, dragged down by weak performances in Facebook, Netflix and Alphabet. Small-cap stocks also continued to rally on the back of a stronger economy and the new tax reform plan.

In the cash market, the bench mark S&P 500 Index settled at 2529.12, up 9.76 or +0.39%. The blue chip Dow Jones Industrial Average finished at 22557.60, up 152.51 or +0.68% and the tech-based NASDAQ Composite closed the session at 6516.00, up 20.04 or +0.31%.

Healthcare stocks have been performing well since the U.S. Republicans dropped their attempt to reveal Obamacare and insert their own health care program.

The overall performance in equities has been strong since the Fed announced it was going to begin trimming its balance sheet in October and it left open the possibility of another rate hike in December at its September 20 monetary policy meeting.

Over the long-run, high inflation and interest rates tend to be a detriment to stock market performance, but apparently not over the short-run and especially when interest rates are still so close to historical lows.

I think the stock market is rallying because the Fed lifted the veil of uncertainty about interest rates. Stock investors don’t like uncertainty because they don’t know how to lay off the risk. Now that they know where rates are heading they can figure out how to play the long side of the market while protecting themselves on the downside.

Forecast

Yes, we know the trend is your friend so keep playing the long side as long as you know your exits if you are wrong. If you don’t have an exit strategy then the market will eventually decide for you and that will be very expensive.

If you’re trading the long side with reckless abandon and with no worries then you’ll eventually pay for that attitude too because even the biggest and best investors know their limits and their risks.

At this time, the three biggest concerns for bullish investors are a prolonged tax reform debate in Congress. This is real because I don’t think the Republicans are going to get everything they want.

The second concern is President Trump’s U.S. Federal Reserve Chair selection. How will the markets react if Yellen is essentially fired? Who is going to replace her? A dove, a hawk. Do you know the front-runners and what they represent? Will the firing of Yellen lead to other resignations at the Fed?

Thirdly, North Korea is still a wild card. We haven’t heard from them in weeks, will they come back even stronger or have they learned their lesson with the new sanctions? The last two reactions by traders to missiles over Japan garnered an extremely mild reaction. What is it going to take to trigger a more bearish response from investors?

Yields are up, stocks are up, the dollar is up and gold and the Japanese Yen are down. Will these correlations hold? Or is a flip in momentum coming.