S&P 500; US Indexes Fundamental Forecast – January 3, 2017

Higher Asian stocks could drag U.S. markets higher early Tuesday as investors return from the long holiday week-end. U.S. equity indexes could also get a boost from stronger crude oil prices if the market rallies due to the start of OPEC plan to cut output.

However, because this is U.S. Non-Farm Payrolls week, it’s difficult to determine if volume is going to return to pre-holiday levels until next week. My experience says that we’re still going to see volume at below average levels and that investors have to be prepared for low-volume volatility spikes.

Furthermore, although investors are optimistic over the election of Trump as president, we still have to go through the approval process for his cabinet nominees and the actual inauguration on January 20. So we are not entering a period of time that indicates the market will have smooth sailing.

Helping to underpin the stock markets early was the release of the better than expected Chinese Caixin Manufacturing Purchasing Managers’ Index (PMI) report. It rose to 51.9, compared to 50.9 in November, beating the 50.9 estimate.

This is good news because it may help to lift worries over the strength of China’s economy at the start of the new year. If you recall, last year, the markets started out weaker because of signs of weakness in the Chinese economy. Because of the volatility it caused, it prevented the Fed from raising rates. So the news from China may actually be good news for the U.S. markets today.

On Tuesday, traders will get the opportunity to react to the latest data on Final Manufacturing PMI, ISM Manufacturing PMI, Construction Spending and ISM Manufacturing Prices.

The most important report is the ISM Manufacturing PMI. It is expected to come in at 53.7, up from 53.2. This report could move the markets higher if it comes in well above the estimate.

After the release of the ISM Manufacturing PMI number at 1500 GMT, I can see volume dropping off because I still think we’ll be in holiday mode and because there will be more important reports later in the week.

On Wednesday, the Fed will release the minutes from its December FOMC meeting.

Thursday features the ADP Non-Farm Employment Change report, weekly unemployment claims and ISM Non-Manufacturing PMI. The ADP report is expected to show the private sector of the economy added 171K jobs in December. Weekly jobless claims is expected to come in at 262K and the ISM Services number at 56.6, down from 57.2.

Friday is the first U.S. Non-Farm Payrolls report for the year. The headline number is expected to show the economy added 175K jobs in December. The Unemployment Rate is expect to rise to 4.7%, up from 4.6%. Average Hourly Earnings are expected to rise to 0.3%, up from -0.1%.

Look for firm markets today, but don’t be surprised by a low volume, two-sided trade especially after the reports are released because of the shortened week and because its jobs report week. I don’t think the major players are going to want trade in front of the jobs report.