Market Direction Week of May 15, 2017©

Market Direction: BULLISH alert issued 11/10/2016

Last Week Review: A wave of economic data, additional corporate earnings announcements, and ongoing political drama in Washington pulled the market in both directions, but U.S. stocks finished the week lower. This is likely to be fairly indicative of the market environment ahead, as traction in the economy and rising corporate earnings set a supportive backdrop, while increasing policy uncertainties could spur higher volatility.

Stock market volatility reached a 24-year low early last week, reflecting a combination of improving economic and corporate fundamentals, ongoing optimism around President Trump's pro-growth tax reform and infrastructure spending (we think market expectations are still slightly too optimistic on this front), and still-stimulative monetary policy. That said, a list of global policy uncertainties will likely steal more of the spotlight and headlines moving ahead, including

• Delays and disruptions to the Trump agenda, particularly around tax reform;
• The execution of Brexit, which will play out over the next few years;
• Rising geopolitical tensions;
• Uncertainty around future trade policy; and
• Anxiety toward future Fed rate hikes.

While they are unlikely to fracture the fundamental foundation of this bull market, we do think they will spur bigger market swings than we've experienced thus far in 2017.

How the market finished last week, the S&P 500 down 0.3%, the Nasdaq up 0.3%, and the Dow down 0.5%.

This Week: Q1 earnings season is nearly over now and the results have been impressive. With 452 companies (90%) of the S&P 500 having reported.

With upside technical resistance, political turmoil and a light economic agenda on the horizon, the recent moderate weakness is likely to continue in the near-term.

While volatility, as measured by the VIX, is near all-time lows, we have seen the SPX breakout out to all-time highs on 5/5, 5/8 & 5/10, and exhibit a top to bottom intraday swing of more than 18 points (0.75%) on 5/11. As I stated last week, “volatility can mean movement in either or both directions”, and that is what we saw this past week. The VIX is not always the best way to measure volatility; only the best known. 

Economic Calendar: Empire State Mfg Survey (5/15), Industrial Production (5/16), Leading Indicators (5/17)

Some of the major earnings announcements on deck: HD, ROST, WMT, FL, DE, CRM.

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