S&P 500; US Indexes Fundamental Weekly Forecast – Earnings Are the Next Major Hurdle for Stocks

The major U.S. equity indexes posted strong gains for a second week. The rally was stoked by a combination of factors including optimism over U.S. tax reform, historically low interest rates and expectations of solid earnings.

In the cash market, the benchmark S&P 500 Index settled at 2786.24, up 1.6%. The blue chip Dow Jones Industrial Average closed at 25803.19, up 2.0% and the tech-based NASDAQ Composite finished at 7256.16, up 1.7%.

The futures market showed similar results. March E-mini S&P 500 Index futures settled at 2788.75, up 46.25 or +1.69%. The March E-mini Dow Jones Industrial Average closed at 25801, up 532 or 2.11% and the March E-mini NASDAQ-100 Index finished at 6775.25, up 107.50 or +1.61%.

Stocks closed over 1% for a second week in a row. Last year, they posted 1% weekly gains 10 times. Not since July 2016 had the indexes closed over 1% for two consecutive weeks.

Forecast

This is a holiday-shortened week. Additionally, the number of major reports will be limited. On Thursday, Building Permits are expected to show an increase of 1.29 million units. Housing Starts are expected to show an increase of 1.27 million units.

Minor reports include the Empire State Manufacturing Index, Core Machinery Orders, Capacity Utilization Rate and Industrial Production.

The U.S. Federal Reserve releases its Beige Book on Wednesday and the Philly Fed Manufacturing index will be released on Thursday.

Stock are expected to build on their best start since 2003 this week. Recent data suggests the U.S. economy is picking up steam. Geopolitical and political concerns seem to be the only risks to the rally at this time, but these events are difficult to time.

Earnings are the next hurdle for stocks. The fourth quarter reporting season is the final quarter where corporations were subject to the 35 percent corporate rate, and now companies are expected to detail how the new sharply lower tax rate will affect them.

The cash markets are closed on Monday for Martin Luther King Jr. Day. On Tuesday, Citigroup, UnitedHealth, Charles Schwab, Comerica, First Republic Bank, CSX, Interactive Brokers, and Pinnacle Financial are expected to report on Tuesday.

Bank of America, Goldman Sachs and Alcoa will report on Wednesday. American Express, IBM and Morgan Stanley will report on Thursday and Kansas City Southern, Synchrony Financial and Schlumberger on Friday.