Market Direction: BULLISH alert
issued 11/10/2016
Last Week Review: Stocks finished up the
week higher, helped by solid first-quarter earnings reports that showed
encouraging signs of improving economic growth, particularly from business
capital investment. Technology and health care stocks led advancers, while
telecoms and utilities declined on the week.
Investors have been waiting eagerly for faster economic growth, and many signs have been pointing that direction. But first-quarter growth was just 0.7%, as consumers paused and the economy stalled. The pace was the slowest in three years and weaker than expected, but don't read too much into it. Since 2011, average first-quarter growth was just 0.9% but followed by average growth of 2.4% in each of the other three quarters. We expect this pattern to repeat and still think the economy should grow about 2.5% in 2017.
Lower tax rates should boost economic growth, but, in our view, the impact is mainly in 2018 and beyond. And the improvement isn't likely to be sufficient to prevent a rising federal deficit. Growing federal deficits and government spending were also in focus in Washington last week, as Congress avoided a government shutdown by extending the funding deadline for a week. We expect the conflicts between deficit concerns and desires for additional stimulus policies to continue.
Investors have been waiting eagerly for faster economic growth, and many signs have been pointing that direction. But first-quarter growth was just 0.7%, as consumers paused and the economy stalled. The pace was the slowest in three years and weaker than expected, but don't read too much into it. Since 2011, average first-quarter growth was just 0.9% but followed by average growth of 2.4% in each of the other three quarters. We expect this pattern to repeat and still think the economy should grow about 2.5% in 2017.
Lower tax rates should boost economic growth, but, in our view, the impact is mainly in 2018 and beyond. And the improvement isn't likely to be sufficient to prevent a rising federal deficit. Growing federal deficits and government spending were also in focus in Washington last week, as Congress avoided a government shutdown by extending the funding deadline for a week. We expect the conflicts between deficit concerns and desires for additional stimulus policies to continue.
How
the market finished last week, the S&P 500 up 1.5%, the Nasdaq up 2.3%, and
the Dow up 1.9%.
This Week: April 28th marks President
Trump’s 100th day in office, and according to PolitiFact, President Trump made
103 promises for his first 100-days, and has so far kept only 6. Stock market
performance however, has been quite good, so I decided to take a look at the
SPX during the first 100-day period for all previous administrations back to
Franklin Roosevelt (where the 100-day timeframe first began) and here is what I
found:
- The direction of the first 100 days has predicted the direction of the first calendar year 84% of the time.
- The market has performed much better during the first 100 days of Democratic administrations (+8.9%) vs. Republicans (-1.3%).
- Democratic Presidents did substantially better during their first calendar year in office (+13.6%) than Republican Presidents (-4.6%).
So
the question is, given an SPX move of +5.5% during Trump’s first 100 days, will
the 84% probability of a full-year gain in 2017 prevail, or will the
historically poor performance of Republican presidents’ first year be more influential.
Given that President Trump is a non-traditional Republican, it is very hard to
put too much value in either trend.
On
Friday, Congress passed a stopgap spending bill to avert a government shutdown
that was due to begin at midnight Friday night (4/28). This will give them
another week to reach a deal on Federal spending though the end of the fiscal
year (9/30). It’s hard to imagine that given the differences, not just between
Democrats and Republicans but also within the Republican party, will get resolved
in another week; but we’ll see.
While
the government won’t shut-down on 4/28, there is now at least a small
possibility that the government will shut down on 5/5, so I thought I’d
resurrect this shutdown table I created back in 2013. While there is bound to
be anxiety over this issue, there probably shouldn’t be.
As
you can see below, there have been 17 shutdowns since 1976, and not only have
the last 3 of them been bullish for the market, only 3 of the bearish shutdowns
have exceeded 3%; the most recent was way back in 1979. Of course the past is
never a guarantee of the future, especially since the Trump administration has
re-written much of the political rulebook, but there is really no historical
precedent for a government shutdown causing any major calamity in the stock
market.
Economic
Calendar: ISM Mfg Index (5/1), Personal Income and Outlays (5/1), FOMC
Meeting Announcement (5/3), International Trade (5/4), Employment Report (5/5)
Some of the major earnings announcements on deck: MO,
AAPL, FB, MA, GPN.
$tockMarketDirection proprietary model is currently BULLISH. We strongly encourage you to monitor positions closely, exercise proper money management strategies and follow us at $tockMarketDirection for ALERTS we may issue advising a change in the current market direction. Stay tuned and follow us. If you have a testimonial or comment of how this website has helped you we would like to know, write us. Share with a friend. Cha-ching.
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