(Monday Market Open) Now that Donald Trump is officially our 45th president, we enter the new week with many market participants pondering, “What’s next?”
But even as Trump settles into his first week at the White House, earnings could stay in the headlines. Approximately 20% of S&P 500 companies are reporting over the next five days.
Some questions include how quickly Trump might introduce tax and infrastructure plans; what his administration and Congress may do to replace the Affordable Care Act (ACA), and which government regulations on business face a possible pullback. The answers may take weeks to resolve, and in the meantime, it seems prudent for investors to stick to their plans, stay patient, focus on earnings, and not get too caught up in daily political talk. It is perhaps a bit telling, however, that one of Trump’s first moves as president was to issue an executive order starting to roll back the ACA. There’s also talk of renegotiating NAFTA with Canada and Mexico.
In the week leading up to Trump’s inauguration, it looked as if many retail investors moved into some more widely-held names. There was also a bit of an increase in VIX both before and during the first part of Trump’s Friday speech. The takeaway seems to be that market participants wanted protection going into the inaugural address in case of surprises. But as the speech went forward, a lot of fear came out of the market, and now there’s a wait-and-see attitude as investors look for the administration to implement some of its proposed policies.
It’s a big week for earnings, and the parade starts this morning with McDonald’s (MCD) and Halliburton (HAL). Tuesday delivers Johnson & Johnson (JNJ) and Alibaba (BABA), and Wednesday brings EBAY (EBAY) and AT&T (T). Perhaps the biggest day is Thursday (see below). We’re truly in the heart of earnings, and the weeks to come could be critical in delivering a sense of corporate health. Wall Street analysts have been forecasting a strong Q4 for S&P 500 companies, and we should soon have a better sense of the early returns.
HAL reported adjusted earnings of $0.04 cents a share and topped consensus of $0.02 cents, but revenue declined to $4.02 billion from $5.1 billion a year ago and fell short of Wall Street analysts’ estimates of $4.07 billion. The stock fell in pre-market trading. MCD reported adjusted earnings of $1.44, beating estimates of $1.41. Revenue fell, but a little less than expected, and came in at $6.03 billion. The consensus had been $5.99 billion.
Key data this week include existing home sales, PMI Manufacturing Index Flash, and the government’s first estimate of Q4 gross domestic product (see below). And we’re approaching next week’s Fed meeting, though the futures market puts odds of a rate hike very low.
Oil prices fell early Monday after a big jump in the U.S. rig count last week. Overseas, Japan’s Nikkei fell 1%, and most European markets were lower.
From a technical perspective, the market has been in a holding pattern for some time, with the S&P 500 Index (SPX) rolling back and forth between around 2250 and 2275. This holding pattern could remain in coming weeks as investors wait for more insight on Trump’s policy priorities. And although VIX plunged late Friday and bonds fell after Trump’s speech, it wouldn’t be surprising to see a bit more nervousness in the critical days ahead.
Market Honeymoon for Trump? For today, the first full market day of the new president’s term, it might be instructive to look back and see how the market performed during the “First 100 Days” of previous presidents’ terms. During the first 100 days of a new president’s first term in office since 1953, the S&P 500 rose in price an average of 1.6%, and was higher at the end of these 100 days 70% of the time, according to research firm CFRA. Performance differences by party were pronounced, as the S&P 500 fell in price an average of 0.4% under the five new Republican presidents, and rose 60% of the time, versus a 3.5% average gain and an 80% frequency of advance for the six Democrats. The caveat here is that past isn’t necessarily prologue, but at least a good portion of the time, the markets have done well as new presidents get a feel for the office.
GDP Among Key Data This Week: Though last Friday and today are rather light on the economic data calendar, things pick up as the week continues. The highlights include existing home sales tomorrow, new home sales Thursday, and to finish off the week, GDP and durable goods on Friday. The government’s GDP estimate is the first for Q4, after a rather robust Q3 that at last estimate saw 3.5% growth. That’s well above the 1% levels seen in the first half of last year, and indicates to some analysts that the economy may be picking up steam. That said, early analyst estimates for Q4 growth are slightly lower, indicating the economy may have cooled down in the last months of the year. The Atlanta Fed’s GDP Now forecasting model predicts 2.8% GDP growth in Q4, but the average analyst estimate is below 2.5%.
A Full, Rich Day: During earnings season, some days stand out more than others. This week, it appears Thursday may be the most jam-packed. Just look at some of the big names expected to report that day, including: Bristol-Myers (BMY), Caterpillar (CAT), Ford (F), Southwest (LUV), Alphabet (GOOG), Intel (INTC), Dow Chemical (DOW), Microsoft (MSFT), and Starbucks (SBUX). It may be wise to consider listening to some of those earnings calls, as they often represent investors’ best chance to really dig in and hear the stories behind the raw numbers.
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