Market Direction Week of February 20, 2017©

Market Direction: BULLISH alert issued 11/10/2016

Last Week Review: The S&P 500 is up 5.0% year-to-date as investors continue to be captivated by possible changes to the U.S. corporate tax code and the regulatory environment. Because expectations for policy changes continue to rise, delays or disruptions of these policy changes could cause market volatility.

Whether you are a Trump supporter or not, with gains exceeding 9% it is difficult to deny that the mood in the marketplace has definitely changed since the election. Yes, President Trump inherited an economic backdrop that is incredibly solid, but unless consumers and business leaders have confidence in what is currently happening, and optimism about the future, the market is more likely to move sideways than higher. A pragmatist certainly realizes that much of President Trump’s pro-business agenda will likely be less dramatic than promised, or not happen at all, but in the near-team that doesn’t seem to matter. Thus the “animal-spirits” (a term that is being used a lot lately) have certainly been released.

The dichotomy here is that as the old investing adage says, “The market climbs a wall of worry” and there is still plenty of healthy skepticism to go around among the anti-Trump crowd. So while these two opposing forces are coming from entirely different directions, they have both provided the fuel needed for the current rally. The markets have historically moved anywhere from 6-months to 18-months ahead of the economy, so how long this balance continues is anyone’s guess. But as billionaire investor Charlie Munger said this week, “Trump is not wrong on everything”.

How the market finished last week, the S&P 500 up 1.5%, the Nasdaq up 1.8%, and the Dow up 1.7%.

This Week: A short week in the stock market with the stock market closed on Monday. The stock market continues to respond to the message that comes from the Trump administration. So goes the message, so goes the stock market. There is some news aboard, UK home builders and banks take center stage next week with company earnings. These vital parts of the FTSE are likely to prove key for direction.

In addition, we also get figures from mining giants like Anglo American and Glencore, with investors keen to see if the year-long rally is justified by an improving fundamental outlook. Some key economic data includes PMI readings from the eurozone and the US, plus RBA minutes that could prove vital given the recent surge in the Aussie. 

Economic Calendar: PMI Manufacturing Index Flash (2/21), FOMC Minutes (2/22), FHFA House Price Index (2/23), Consumer Sentiment (2/24)

Some of the major earnings announcements on deck: HD, WMT, RGR, TJX, BIDU.

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