S&P 500; US Indexes Fundamental Daily Forecast – Mixed Bag; Trade War Fears Bearish, Sluggish Inflation Bullish

The major U.S. stock indexes finished mixed on Monday on continuing fears of a trade war over President Trump’s tariffs on steel and aluminum imports. The price action suggests the brut of any retaliation will be felt by the Dow Jones Industrial Average and the S&P 500 Index with the tech-based NASDAQ Composite primarily getting a pass.

In the cash market, the benchmark S&P 500 Index settled at 2783.02, down 3.55 or -0.13%. The blue chip Dow Jones Industrial Average finished at 25178.61, down 157.13 or -0.62% and the tech-driven NASDAQ Composite closed at 7593.18, up 32.37 or +0.43%.

The Dow closed lower on Monday after giving up a gain of more than 100 points. Giving the Dow a boost were shares of Apple and Goldman Sachs which reached new all-time highs. Pressuring the blue chip market was a more than 2 percent drop in shares of Boeing, Caterpillar and United Technologies.

Traders were caught off-guard by the sell-off, prompting Art Hogan, chief market strategist at B. Riley FBR to say, “It’s a growing concern that a mistake in trade policy could be as big as a mistake in monetary policy.”

Forecast

The mixture of fundamental data hitting the market at this time can only mean that investors should continue to expect heightened volatility.

Investors are watching and reacting to Trump’s tariffs as worries continue to mount that other countries could retaliate by imposing tariffs on U.S. goods. This news may be limiting gains, or encouraging selling.

Volatility can also push markets higher especially when it comes to the outlook for inflation and interest rates. On Friday, for example, the NASDAQ erased all of its February loss after the Non-Farm Payrolls report showed better-than-expected jobs growth, but also weaker-than-expected average hourly earnings.

The latter is very important to stock traders because it likely will make the difference between whether the Fed raises rates three times or four times this year. Monday’s early rally was likely supported by the notion that the Fed will stick with its earlier forecast for three rate hikes.

Another piece of the puzzle will be added later today. At 1230 GMT, investors will get the opportunity to react to the latest U.S. data on consumer inflation. It is expected to come in at 0.2%, down from the previously reported 0.5%. Core CPI is also expected to rise by 0.2%, down from the previously reported 0.3%.

This week’s U.S. inflation data could generate more uncertainty for investors. Weaker-than-expected consumer inflation data on Tuesday and producer inflation data on Wednesday could give stocks a boost while putting further pressure on the struggling U.S. Dollar.

Traders should also watch for volatility because the CPI inflation data could be bullish for stocks, but trade war news could be bullish. This opens up the possibility of a two-sided trade, much like Monday’s price action.