S&P 500; US Indexes Fundamental Daily Forecast – Sentiment Could Grow Bearish if Tax Reform is Delayed

U.S. stocks closed a little better on Monday on takeover news, but a decline in General Electric shares, coupled with concerns over a possible delay in tax reform, limited gains in the major indexes.

In the cash market, the benchmark S&P 500 Index settled at 2584.84, up 2.54 or +0.10%. The blue chip Dow Jones Industrial Average closed at 23439.70, up 17.49 or +0.07% and the tech-based NASDAQ-100 Index finished the session at 6756.64, up 5.70 or +0.08%.

The S&P 500 Index was supported by a 20 percent rise in Mattel. The toymaker rose after Hasbro approached it to discuss a possible takeover. GE was the worst performing stock in the index. It fell 7.2 percent after the company issued weaker-than-expected guidance for 2018. It also slashed its dividend by 50 percent and announced it will focus on its health care, aviation and energy businesses moving forward.

The Dow Jones Industrial Average was up with Boeing contributing the most to the gains while GE led decliners. The NASDAQ Composite was supported by strength in Facebook, Amazon and Netflix. Gains were limited by weakness in Apple and biotech stocks.

Forecast

With earnings season winding down, investors are likely to remain on edge over whether the government will get tax reform done at all this year. To a lesser extent, investors are likely to react to the new wave of takeover announcements.

Yesterday, Qualcomm announced it rejected Broadcom’s takeover bid. We have yet to hear Mattel’s response to Hasbro’s attempt to take over the toymaker. 21^st Century Fox is reportedly still in talks to sell most of the company to Disney.

Sentiment could grow bearish as the tax debate intensifies as investors become more skeptical about whether lower corporate taxes will arrive this year. Investors are concerned that the Senate’s tax reform bill may delay the corporate tax cut until 2019.

The focus for earnings traders will remain on the retail sector with retailers such as Home Depot, Lowe’s and Wal-Mart releasing their quarterly results later this week.

Early Tuesday, FOMC Member Charles Evans speaks. Shortly afterwards, pre-market investors will get the opportunity to react to a speech from Fed Chair Janet Yellen. Investors are hoping they’ll shed some light on the direction of interest rates and inflation.

At 1000 GMT, the NFIB Small Business Index is expected to rise to 104.2 from 103.0.

The major report is at 1330 GMT. Government data on Producer Inflation is expected to show a rise of 0.1%. Last month’s read was 0.4%. Core PPI is expected to come in at 0.2%, down from the previously reported 0.4%.