S&P 500; US Indexes Fundamental Forecast – March 1, 2017

U.S. stocks closed lower on Tuesday as investors cast doubts that President Trump would provide any details about his economic policies in his Tuesday night speech. After igniting the current leg of the bull market, Trump has failed to deliver any details as to how he intends to reform taxes and grow the economy through aggressive fiscal spending.

In the cash market, the S&P 500 Index closed at 2363.64, down 6.11 or -0.26%. The blue chip Dow Jones Industrial Average finished at 20812.24, down 25.20 or -0.12% and the NASDAQ-Composite ended at 5826.69, down 35.21 or -0.60%.

The price action may be suggesting a tired market, or that investors are tired of taking a “wait and see approach” with Trump. I don’t think that investors are preparing to begin dumping stocks because traditionally, they give a new President the first 100 days in office to get his agenda rolling. However, I do think that investors are getting a little tired of hearing him reiterate his campaign promises. Therefore, I wouldn’t be surprised by a near-term correction.

Forecast

Further complicating things for investors at this time are growing concerns that Trump may not be able to accomplish any of his economic policy plans. This isn’t necessarily bearish, but it will mean that in order to sustain the rally, the economy must continue to strengthen and grow along with earnings.

Strong growth and a heated-up economy will draw the attention of the Fed who seem to be ready to raise rates before the economy get too hot. A sooner-than-expected rate hike by the Fed will likely cool down the economy.

Just last week, investors acted as if they weren’t too concerned with a March rate hike. However, I believe they should be since a March hike opens the door to additional rate hikes in June, September or December. I think stock investors will accept two rate hikes this year, but three rate hikes may be too much to handle.

If stocks do weaken on Wednesday, it’s not likely to be related to the economy, but rather frustration with Trump over the lack of details for his economic plans. The key report today will be the Core PCE Price Index since this is the one that the Fed follows. If it comes in stronger than 0.3% then the odds of a March rate hike should increase dramatically and this could give investors an excuse to book profits.

If it comes in lower than expected then stocks may turnaround and post new record highs by the end of the session.