S&P 500; US Indexes Fundamental Forecast – January 24, 2017

The three major stock indices closed lower on Monday as investors took their time to digest the details of President Trump’s executive order for the U.S. to withdraw from the Trans-Pacific-Partnership, his warning of a border tax and the renegotiation of NAFTA. Traders also continued to anxiously await the details of his economic policies.

In the cash market, the benchmark S&P 500 Index closed at 2265.20, down 6.11 or -0.27%, the blue chip Dow Jones Industrial Average finished at 19799.85, down 27.40 or -0.14% and the tech-based NASDAQ-100 Index ended the session at 5553.15, down 2.18 or -0.04%.

Forecast

At this time, uncertainty seems to be controlling the price action. Investors are trying to gauge the risk in their portfolios with Trump as President, but his unpredictability makes it difficult to add to current positions. Heavy bets have been laid by investors since Trump won the election in November. And based on investor reaction, these bets seem to be a little more speculative than investors are comfortable with. So until he comes clean with his plans to rebuild America through aggressive fiscal spending, tax cuts and relaxed regulations, trading conditions are going to be a little choppy.

Trump did mention on Monday one of his campaign promises:  deregulation. He said he believes his administration can cut regulations by 75 percent or “maybe more.”  “We’re going to be cutting regulation massively,” he told reporters.

Investors seem to be giving investors the benefit of the doubt that he will reveal more details of his plans. It is customary for investors to give a new President at least 100 days to get his house in order, but with Trump it seems the clock has been ticking since early November. This is making investors uncomfortable, but not concerned enough to dump stocks.

I’ve said before that hope, fear and greed are prevalent in the markets at this time. Many investors don’t want to bail on Trump simply because he may reveal the details of his plans at any time. Investors are holding positions with downside protection coming in the form of put options since no one wants to jump out of stocks out of fear they may miss the next big rally.

So I expect the major indexes to drift sideways to lower over the near-term unless there is unexpected news. In that case, prices are likely to treat hard. In my opinion, any bearish news will be magnified because of the frustration with Trump that has been built into the markets.