S&P 500; US Indexes Fundamental Analysis – Forecast for the Week of January 16, 2017

U.S. equity indexes were marginally lower last week as investors reacted to the start of the fourth quarter’s earnings season and political uncertainty.

In the cash market, the Dow Jones Industrial Average finished the week at 19885.73, down 0.4%. The bench mark S&P 500 Index closed at 2274.64, down 0.1% and the tech-based NASDAQ Composite ended the week at 5572.31, up 1.0%.

The start of earnings season took a backseat to Donald Trump’s press conference last week on January 11. Trump’s comments and lack of comments triggered volatile reactions across the board. His comments on high drug prices helped trigger a tremendous sell-off in the pharmaceutical sector. His inability to reveal anything about his economic plans also triggered a volatile response from traders. Most investors expressed disappointment in his avoidance of this topic, but some investors held out hope that he may be saving this news for his inauguration speech.

Weaker crude oil prices also weighed on the markets, particularly the Dow and the S&P 500 Index. This led investors to place their investing capital into NASDAQ stocks that helped drive the index to a new all-time high.

Forecast

This week, investors will once again be looking for something positive from Trump in his inauguration speech on January 20. Although there was volatility last week when he failed to talk about his policies, he received the benefit of the doubt because he hadn’t officially taken office yet.

Shortly after the election in November, stock prices rose and Treasury yields rose due to expectations about Trump’s pro-growth policies. Since late December, however, the pace of the stock market rally has slowed and Treasury yields have crept lower.

Investors have grown increasingly optimistic that the combination of solid jobs growth and President Trump’s expected pro-growth policies should spur stronger economic growth later this year. However, they are starting to grow impatient with Trump’s inability to reveal any of the details of this plans that are supposed to increase government spending on infrastructure, lower taxes and relax regulations.

In the short-run, we expect to see another higher spike in stock prices if Trump says anything positive about his plans in this week’s inauguration speech. However, in the long run, we expect to see more volatility due to uncertainty over economic growth, the number of interest rate hikes, inflation and the fluctuations in the value of the U.S. Dollar.