S&P 500; US Indexes Fundamental Weekly Forecast – Tax Reform, GDP & Jobs – Key Market Drivers This Week

The major U.S. equity indexes closed higher last week, most sectors posted positive gains with materials and telecom providing the best performance. Consumer staples was the only sector posting a loss.

The range was tight last week and volume extremely low at times. There was one big surge on Tuesday which was related to political events. Stocks spiked higher on renewed hopes of U.S. tax reform.

According to investors, half of the rally was related to speculation that the White House and Republicans are making progress on tax legislation or on at least a repatriation plan that would involve infrastructure spending.

In the cash market, the blue chip Dow Jones Industrial Average settled at 21814.00, up 0.6%. The Dow is up 10.4% for the year. The bench mark S&P 500 Index closed the week at 2443.00, up 0.7%. It’s up 9.1% for the year. The tech-based NASDAQ Composite ended the week at 6266.00, up 0.8%. The index has posted a 16.4% gain for the year.

Also last week, in a primetime address on Monday, President Trump said that a swift U.S. troops withdrawal from Afghanistan would create a “vacuum” that terrorists would “instantly fill.” In doing so he orders more troops into the region.

This news helped boost defense stocks which rose broadly following Trump’s remarks. The iShares U.S. Aerospace and Defense ETF (ITA) and Boeing, a key Dow component, posted solid gains on the news.

Fed Chair Janet Yellen’s much anticipated speech on Friday at the central bankers’ conference at Jackson Hole fueled a mixed response. Yellen did not talk about monetary policy and came off as dovish according to traders.

At the end of the week, traders had priced in about a 37 percent chance of a rate hike in December. This is potentially bullish for stocks. Although investors have other concerns at this time, particularly valuation, futures earnings, political and geopolitical events.

Forecast

This week’s focus is likely to be on political events in Washington, U.S. GDP and the Non-Farm Payrolls report.

According to a Politico report, the Trump administration and key lawmakers had found common ground on how to approach tax reform.  President Trump’s chief economic advisor Gary Cohn said the President will start publicly campaigning for highly-anticipated tax reform this week. Cohn told the Financial Times that Trump will begin calling for long-awaited reform next Wednesday when he visits Missouri.

The tax reform news could be supportive for stocks if Trump delivers a strong message with clarity.

Investors will also get the opportunity to react to a number of key U.S. economic reports.

On Tuesday, Consumer Confidence is expected to come in at 120.3, slightly below last month’s reading.

Wednesday’s key report is U.S. Preliminary GDP. It is expected to come in at 2.7%.

Friday is a buying day with Non-Farm Payrolls and the ISM Manufacturing PMI report.

The U.S. economy probably added 180,000 jobs in August. The unemployment rate is expected to remain at 4.3% and Average Hourly Earnings are expected to inch higher by 0.2%.