S&P 500; US Indexes Fundamental Forecast – February 22, 2017

U.S. equity indexes surged on Tuesday to new all-time highs as investors reacted to strong earnings reports and a positive development in the Trump administration.

In the cash market, the benchmark S&P 500 Index close at 2365.39, up 14.22 or +0.60%. The blue chip Dow Jones Industrial Average finished at 20743.00, up 118.95 or +0.58% and the tech-based NASDAQ Composite ended the session at 5865.01, up 28.43 or +0.45%.

The White House announced Monday that Lieutenant General H.R. McMaster will become the new national security advisor. Investors saw this a positive development because it meant one less worry for President Trump, which means he’ll be able to focus on his economic policies.

Forecast

Although Tuesday’s rally was mostly fueled by stronger-than-expected earnings reports, the main support was being generated by anticipation of President Trump’s plans for tax reform, deregulation and economic growth.

In the U.S. on Wednesday, investors will get the opportunity to react to the latest data on Existing Home Sales. This report is expected to show a 5.55 million unit gain. FOMC Member Powell is also expected to give a speech.

The highlight of the day will be the release of the Fed minutes from its February Monetary Policy meeting. The minutes of the January 31 – February 1 meeting could signal if another interest rate hike is imminent.

I’m not expecting the Fed minutes to have too much of an influence on stocks on Wednesday unless they are interpreted as less-hawkish than anticipated.

I think that the price action in the markets suggests investors have already accepted the idea that the Fed may raise rates at least two or three times this year. However, if the minutes showcase a less-hawkish Fed then look for a strong move to the upside because this will mean interest rates will stay lower for longer-than-anticipated. And stock investors like low rates.