Market Direction Week of December 4, 2017©

Market Direction: BULLISH alert issued 9/21/2017

Stock on the Radar (STAR)© was launched 6/19/2017 Sunday evening. When there is a new stock recommendations for the week it is typically made available late Sunday, so investors can prepare to take a position when the market opens Monday for trading.

Last Week Review: Stocks were higher on the week but with more volatility. Markets rallied nearly 1% on both Tuesday and Thursday on the back of increasing optimism that the U.S. Senate will pass a tax-reform bill soon. However, these gains were slightly eroded on Friday when news broke that Mike Flynn, President Trump's former national security advisor, may testify regarding interference in the 2016 election. We expect more volatility to come as elevated political uncertainty, a shift in sentiment, or unexpected changes in fiscal, monetary or trade policies are all possible reasons for stock market pullbacks.

The British pound jumped this week on signs of progress in deadlocked Brexit negotiations and Bloomberg reported that the Bank of England's (BoE) banking sector stress test results showed that all banks passed with no need to strengthen their capital positions. In Germany, political uncertainty lingers as consumer price inflation was mostly higher than expected. In France, Q3 GDP rose at a pace that matched forecasts and overall Eurozone economic confidence improved.

One again the news that garnered the most attention in Asia this week was the latest North Korean missile test on Tuesday (11/28). The markets have seemingly reached a point of panic exhaustion on this issue though as the pullback in equities when the news broke, was only about -0.4% and it lasted less than an hour.

Crude oil prices have been quite volatile this week as an OPEC meeting held on Thursday (11/30) resulted in an agreement to extend production cuts until the end 2018. Activities now move toward convincing Russia (a non-OPEC member) to agree with the plan.

How the market finished last week, the S&P 500 up 1.5%, the Nasdaq down 0.6%, and the Dow up 2.9%.

This Week: Throughout the week, Congress and the media have been so focused on getting the tax reform bill passed, that it appears many have forgotten about the fact that the government could shut down next Saturday (12/9). Or perhaps they realize that even if it does, that might not be such a bad thing. As you can see below, history tells us that a government shutdown is unlikely to derail the bull market. While past performance is no guarantee of future results, the market actually rose during the last 3 shutdowns.

It has been a very interesting week; tax negotiations, strong economics, record high markets, an unusual correlation between the SPX and the VIX, all culminating in a brief news panic on Friday. Overall while there is certainly some near-term anxiety over what will come out over the weekend regarding the Flynn investigation, it does appear that the Senate may have the votes needed to pass their version of the tax reform bill. Keep in mind though, the Senate bill must still be reconciled with the House version, and there isn’t much time left for that to happen before the holiday recess. On top of that, for a Government shutdown to be avoided, an agreement must be reached before Saturday (12/9). Next week should be very interesting.

The most logical outcome for next week is that the Senate tax bill will be passed, an agreement on at least a short-term extension to keep the Government open will be reached, and the Flynn issues will largely be known. 

Economic Calendar: Factory Orders (12/4), International Trade (12/5), Employment Report (12/8), Consumer Sentiment (12/8)

Some of the major earnings announcements on deck: AZO, VEEV, TOL, AVGO, COO.

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