S&P 500; US Indexes Fundamental Analysis – Forecast for the Week of February 27, 2017

U.S. equity markets closed higher on Friday as investors had a mixed reaction to reports that Trump’s tax reform plan and other economic policy plans may be delayed until August. However, there is still no evidence that investors are beginning to turn bearish on Trump’s ability to accomplish his campaign promises to form taxes, relax a few government regulations and spur economic growth through aggressive fiscal spending.

In the cash market, the benchmark S&P 500 Index closed at 2367.34, up 3.53 or +0.15%. The blue-chip Dow Jones Industrial Average finished at 20821.76, up 11.44 or +0.05% and the tech-based NASDAQ Composite ended the day at 5841.78, up 6.27 or +0.11%.

Forecast

Stock investors seem to be immune to the news regarding the possible delay in Trump’s plans to stimulate the economy through tax reform. Furthermore, the evidence seems to be showing us that investors feel the economy is strong enough to sustain growth even without tax cuts. This is why the rally may continue on Monday. Investors aren’t likely to give up on the market unless Trump makes a misstep politically, or the economy starts to show evidence of weakening.

The major indicators of weakness in the economy will be the labor market and inflation data. As long as these two fundamentals are trending higher, I think investors will sustain the rally.

On Monday, traders will have the opportunity to react to a slew of U.S. economic data including Durable Goods. Core Durable Goods are expected to rise 0.5% and Durable Goods Orders by 1.6%.

Minor reports include Pending Home Sales, which are expected to increase by 1.1%, down from the previous 1.6%.

Dallas Fed President Robert Kaplan is also expected to speak on Monday. He is considered a hawk so he may try to build a case for a March rate hike, which could help put a lid on gold prices. Recently, Kaplan revealed that the Fed should leave its options open to a rate hike in March.

He also said that the Fed should be tactical in taking opportunities to hike. Furthermore, he said Trump’s policies should focus on sustainable growth. Finally, he said that as the year unfolds, he does not want the Fed to get behind the curve.

On Tuesday, Trump is expected to reveal some details of his infrastructure spending and tax plans, but traders are not counting on seeing the same bullish reaction we’ve seen recently.

On Sunday, in a televised interview, Treasury Secretary Steven Mnuchin provided more details. He said that Trump will use the event to preview some elements of his sweeping plans to cut taxes for the middle class, simplify the tax system and make American companies more globally competitive with lower rates and changes to encourage U.S. manufacturing.