S&P 500; US Indexes Fundamental Weekly Forecast – Investors Anticipating Strong Earnings Season

The three major U.S. stock indexes all reached record highs last week, breaking out to the upside following an almost five-week consolidation. The catalysts behind the rally were expectations of a strong second quarter earnings season and lower interest rates for longer-than-expected.

In the cash market, the benchmark S&P 500 Index closed at 2,459.27, up 1.4%. It’s up 9.8% for the year. The blue chip Dow Jones Industrial Average settled at 21637.74 up 1.0% and is now up 9.5% for 2017. The technology-based NASDAQ Composite ended the week at 6311.44, up 2.6%. It is now up 17.3% for the year.

Forecast

Earnings of companies in the S&P 500 were up 15.3% in the first quarter, according to Edward D. Jones &Co. Traders expect this trend to have continued during the second quarter. U.S. equity markets should continue to rally this week based on these expectations.

Stocks could also be supported by a rebound in crude oil prices and a weaker U.S. Dollar. Investors have also become increasingly optimistic over better global growth. Stocks are also being helped by a drop in inflation and lower long-term interest rates.

Testimony by Fed Chair Janet Yellen and disappointing consumer inflation and retail sales data highlight the slow growth in the economy. This news isn’t expected to show up in the earnings reports. It has, however, raised concerns over Fed policy.

The reaction by investors last week suggests they are betting the central bank will slow down its tightening activity. This means lower interest rates for a longer period of time than previously expected.

Since the Fed’s decision in mid-June to raise interest rates 25-basis points, stocks have treaded water in anticipation of a third rate hike this year in either September or December. Last week’s price action, however, indicates that the chances of this rate hike taking place this year has diminished considerably, thereby, making stocks a more attractive investment.

The markets seem to be immune to weak economic data at this time, but very sensitive to fresh news about President Trump’s involvement with Russia in its attempt to influence the U.S. election. Any surprise news regarding this situation could lead to attempts to derail the rally.