Market Direction Week of April 3, 2017©

Market Direction: BULLISH alert issued 11/10/2016 

Last Week Review: Stocks moved higher on the week, recovering some of the decline experienced the previous week, which was the largest weekly decline in 2017. In addition, the cyclical sectors of the market, those that are more sensitive to economic growth, outperformed defensive sectors for the first time since the beginning of February, signaling a slight renewal of optimism around the outlook for the economy following the concerns surrounding the setbacks to the Trump agenda related to the recent health care bill.

More broadly, the post-election rally in the market has been strongest in those asset classes and areas most directly linked to an improving economic outlook. Small cap stocks are up 20% since early November, and cyclical sectors of the S&P 500 have outpaced the more defensive, higher-yielding industries. Financial services stocks, a member of that cyclical group, have been a focus for many investors because this sector has outperformed all other sectors since the election, but has underperformed the market and all other sectors over the past month.

How the market finished last week, the S&P 500 up 0.8%, the Nasdaq up 1.4%, and the Dow up 0.3%.

This Week: The ongoing saga with Trump’s former national security adviser Mike Flynn, could cause some slight volatility early next week, as could the ISM reports on Monday & Wednesday. But all should be well when the March employment reports hit on Friday.

A busier week for economic data is finally upon us, as Q2 gets underway in earnest. US job reports, in the form of ADP and NFPs, will dominate the week, while UK watchers have the PMI trio to get their teeth into. World trade watchers will be showered with data on trade balances, including from the UK and US, while for the central bank aficionados we have the Reserve Bank of Australia (RBA) decision and then the set of the Federal Reserve minutes from the most recent meeting.

Company data watchers will not have such a fun week, but we do have numbers from ASOS that will be of interest for the retail sector. There is still a while to go before US earnings season starts again.

With Brexit talks starting soon, we should be prepared for further commentary from both sides, which should provide some volatility for sterling and euro assets.

Economic Calendar: ISM Mfg Index (4/3), International Trade (4/4), FOMC Minutes (4/5), Employment Report (4/7), Consumer Credit (4/7)

Some of the major earnings announcements on deck: AYI, BBBY, MON, KMX, STZ. 

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