S&P 500; US Indexes Fundamental Weekly Forecast – Earnings and Fed on Tap This Week

After several weeks of consolidation in June and early July, U.S. equity markets have posted solid gains the last two weeks. All major cash and futures indexes have even reached new all-time highs.

In the cash market, the benchmark S&P 500 Index settled last week at 2,473, up 0.50%. It is up 10.4% for the year. The blue chip Dow Jones Industrial Average finished at 21,580, down 0.3%. It is up 9.2% in 2017. The technology-based NASDAQ Composite closed at 6,388, up 1.2%. The index has gained 18.7% this year.

Last week’s strength was primarily related to lower Treasury yields, a weaker U.S. Dollar and strong earnings.

Treasury yields continued to erode as the odds of a third Fed interest rate hike later this year diminished.

The dollar was crushed by speculators betting on sooner-than-expected rate hikes by the European Central Bank and the Reserve Bank of Australia.

Earnings continued to impress investors. According to FactSet, calendar second-quarter earnings have mostly exceeded expectations this far. With 20 percent of S&P 500 companies having reported, 73 percent have beaten expectations and 77 percent have beaten on sales.

Forecast

This week, investors will have to deal with a plethora of earnings and a U.S. Federal Reserve interest rate decision and monetary policy decision. Near the end of the week, investors will get the opportunity to react to the latest U.S. Durable Goods and Advance GDP.

Over the next two weeks, nearly 200 companies will be releasing their financial statements for the second quarter.

The Federal Open Market Committee is widely expected to leave interest rates unchanged at<1.25%. However, investors will be looking for clues in its monetary policy statement as to the timing of the next interest rate hike.

A dovish Fed is likely to greenlight another stock market rally. A hawkish Fed will be a surprise, but investors may not believe them. However, I don’t think there will be a major sell-off.

Finally, last week, officials increased the scope of the investigation regarding the Trump campaign’s involvement with the Russians in influencing last November’s elections. Additionally, Republican senators canceled plans to repeal Obamacare and replace it with their own healthcare plan. The inability to pass this key piece of legislation raises doubts about the Trump administration’s ability to pass tax reform and infrastructure spending bills.

These issues are likely to continue to be monitored by stock investors.