S&P 500; US Indexes Fundamental Analysis – Forecast for the Week of January 23, 2017

The three major U.S. equity indexes closed lower last week as investors took to the sidelines ahead of Trump’s inauguration. Once again, the Dow failed to reach the historical 20,000 market. However, the NASDAQ posted new all-time high before retreating into the close.

In the cash market, the blue chip Dow Jones Industrial Average closed the week at 19827, down 0.3%. It’s year-to-day performance is +0.3%.

 

The benchmark S&P 500 Index finished the week at 2,271, down 0.1%. YTD, the index is up 1.5%.

The tech-based NASDAQ Composite ended the week at 5,555, down -0.3%. It is up 3.2% Year-to-date.

With the exception of the NASDAQ Composite, stocks were lower for second week with the Dow close to turning negative for the year. It was a lackluster week, leading up to Trump’s inauguration on Friday with company earnings driving much of last week’s stock market action.

Forecast

U.S. economic data will be scarce this week, with Advance GDP and Durable Goods the major reports. The bulk of company earnings will also be coming in the next two weeks. We expect aggregate earnings to continue to grow, however, we also expect to see individual stocks surprise us on both the upside and the downside.

Trump’s election in November has been positive for stocks, but the markets have been shaky lately with investors asking for more information on his policies. The major question seems to be:  Will Trump deliver what he has promised in terms of aggressive fiscal spending, lower taxes and relaxed regulations?

We do know from the recent labor market and consumer inflation numbers that the economy is on sound footing and will respond with slightly faster growth this year. Trump’s proposed economic policies would be effective in stimulating spending and much-needed business investment. However, it may take time for his infrastructure spending plan to gain traction.

Furthermore, we do believe the bull market has room to run. Finally, expectations are unlikely to match perfectly with execution. In other words, the strong rally after Trump’s unexpected victory in November helped raise the bar for the stock market, however, the potential for short-term disappointment also moved higher.

At this time we’re bullish stocks but we would not be surprised by short-term weakness. A president’s first 100 days in office often constitute a period of evaluation by investors. However, with the unique nature of Trump’s presidency bringing uncertainty, we could see temporary disruptions in the uptrend. Despite this disruptions, the longer-term path ahead for equities is likely to remain bullish.