S&P 500; US Indexes Fundamental Weekly Forecast – Holiday Trade May Limit Price Action This Week

The major U.S. large-cap stock indexes finished lower last week with the Dow Jones Industrial Average and S&P 500 Index posting their second consecutive weekly loss. The NASDAQ Composite eked out small gain. The up and down price action last week may be signaling that investors should begin preparing for the return of volatility.

In the cash market, the benchmark S&P 500 Index settled at 2578.85, down 0.1%. For the year, the index is up 15.2%. The blue chip Dow Jones Industrial Average finished the week at 23358.24, down 0.3%. It is up 18.2% in 2017. The tech-based NASDAQ Composite ended the week at 6782.00, up 0.5%. It is now up a whopping 26% for the year.

Progress was made on tax reform when the U.S. House of Representatives passed its tax overhaul bill. This helped drive stocks higher. However, gains were limited because of uncertainty over the timing of the Senate’s plan. Investors are pricing in the possibility of a lengthy process to reconcile the differences between the House and Senate plans.

Changes in government policies often have a sizable effect on investment returns because their timing and impact are harder to predict. Therefore, investors should continue to prepare of volatility and the possibility of a two-sided trade over the near-term.

Finally, the major indexes were also pressured by a report on November 16 that Special Counsel Robert Mueller’s investigators probing possible Russian interference in the 2016 U.S. election had subpoenaed Trump’s election campaign for documents.

Forecast

This week’s price action is a tough call because of the U.S. Thanksgiving holiday on November 23. Traditionally, this is a low volume, low volatility week.

The holiday-shortened week in Washington likely means there won’t be any activity involving tax reform with the U.S. Senate likely to pick up the issue when it returns to the Capital next week.

In other news, traders will get the opportunity to react to a speech by Fed Chair Janet Yellen on Tuesday. On Wednesday, the U.S. reports on Core Durable Goods. The report is expected to show an increase of 0.4%. The Federal Open Market Committee will release its meeting minutes at 1900 GMT.

The minutes are expected to provide insight into the Fed’s plans to raise rates in December which the market feels is a done deal.

Uncertainty over tax reform is likely to continue to pressure the major stock indexes. However, losses may be limited because of the low volume.