S&P 500; US Indexes Fundamental Forecast – April 28, 2017

U.S. equity markets are trading flat during the pre-market session. The blue chip Dow Jones Industrial Average and benchmark S&P 500 Index have been flat-lining since President Trump announced his tax reform plan on Wednesday. Since the plan didn’t contain many surprises, traders deemed it as disappointing. This probably gave investors an excuse to take profits.

The NASDAQ Composite, on the other hand, continued to spike higher late Thursday, led by strong earnings from Alphabet and Amazon.com.

Stocks could post a two-side trade on Friday, mostly due to end-of-the-month position-squaring. None-the-less, they are still expected to post a monthly advance of about 1 percent.

Flight-to-safety buying because of geopolitical concerns held the markets hostage for most of the month. That is until the results of the French election were released on Sunday. The favorable results helped drive up demand for risky assets, helping the indexes to post their gains for the month.

Stocks were also helped by strong corporate earnings this week. Surprisingly, it was earnings and geopolitical events that helped trigger this week’s rise and not Trump’s tax plan announcement. Since the election, investors had been anticipating the release of the tax plan. And when it was finally revealed, it seems to have become a “buy the rumor, sell the fact” situation.

Forecast

The stellar earnings reports seem to have eased the anxiety over North Korea and Trump’s policy agenda. Today, we’ll find out if they have a similar effect on key U.S. economic reports including Quarterly GDP, the Employment Cost Index, Chicago PMI and Consumer Sentiment.

Advance GDP is expected to come in at 1.3%, down from the previous 2.1%. The Employment Cost Index, which is a measure of wage inflation, is expected to increase 0.6%, slightly better than the previous 0.5%.

Although it was hardly mentioned this week, there are still outstanding worries over North Korea. The politicians keep reminding us that this is a serious situation, but the price action suggests that investors have put the problem behind them.

Stock markets often top when investors become complacent. In my opinion, investors have become complacent to the situation in North Korea. It may not happen today, or even next week, but this situation needs to be watched especially when earnings season ends and investors are forced again to come back to reality.