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Lack of News on Trump Tax Policy Could Be Keeping Market In Snooze Mode

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March 21, 2017

(Tuesday Market Open)  With little economic data on the horizon and the Fed meeting well behind, the market appears to be looking for new catalysts. One that many investors would like to see is tax policy from the new administration.

The S&P 500 (SPX) and the Dow Jones Industrial Average ($DJI) have now both gone more than 110-consecutive sessions without falling 1% or more. The Nasdaq set an intra-day high yesterday. But there wasn’t much in the way of a catalyst. Volume has been light and trading has been “dishwater dull,” as the expression goes. 

Stocks might continue to flounder in somewhat dull trading today with catalysts seemingly lacking. It’s one of these markets where we keep looking for news out of Washington, D.C. Not a lot of the news has been tax-related, so markets continue to flounder around. Tax policy is the major piece of legislation many are focused on, and until it comes out, this lack of direction might be sustained for a while.

Fed speakers dominate the action this week, and Monday started things off with comments from several Fed presidents. The big takeaway from their remarks is that three rate hikes remain a possibility for 2017 — not a surprise considering that’s what the Fed projections showed after last week’s meeting — and that economic growth and inflation still haven’t been as quick as some at the Fed would like to see.

Philadelphia Fed President Patrick Harker told CNBC that there’s been a rise in consumer confidence based on the new administration’s proposed infrastructure and tax policies, but that “confidence has to translate into action.” That would seem to echo what many investors have been thinking as anticipation grows for more details around President Trump’s economic policies.

Several other Fed presidents and Fed Chairman Janet Yellen all have remarks scheduled this week (see below). That includes a few today. However, keep in mind that the Fed speeches may be interesting to listen to, but probably won’t have much effect on the market. At some point, people are just looking for something to trade, and no individual speaker is suddenly going to personally change Fed policy.

Just about every day lately there’s been one sector that dragged. Last week, health care fell victim, and on Monday it was utilities’ turn. Dividend stocks like utilities may be coming under pressure from rising Treasury yields, which stand near 2.5% and are now well above the S&P 500 Index’s (SPX) average yield. That’s the opposite of a year ago, when stock dividend yields topped Treasury yields, helping draw money into equities.

Two big earnings reports are due after the close: FedEx (FDX) and Nike (NKE). Wall Street analysts’ consensus for FDX earnings stands at $2.62 a share, up from $2.51 a year ago, according to Briefing.com. For NKE, consensus is at 53 cents a share, down from 55 cents a year ago. Shares of NKE have been on the upswing lately, but FDX has pretty much been treading water and its prior quarter was a rough one, due in part to strong competition. Today’s FDX results could give investors one more look at holiday season consumer demand, as the earnings report covers December through February.

There’s little on the calendar today from an economic data perspective, but tomorrow morning sees the release of February existing home sales. Wall Street analysts’ consensus is for a seasonally adjusted figure of 5.54 million, according to Briefing.com, down from 5.69 million in January. The closely watched first time buyers statistic in the report hit 33% in January, but high prices and limited inventory remain barriers for that group.

Crude oil awoke a bit from its slumber early Tuesday, climbing back above $49 a barrel, helped in part by reports in the media that OPEC might extend its supply cut. Keep in mind, however, that just last week oil was sagging on talk that the supply cut might not get extended. U.S. stockpiles data from the government tomorrow could be worth watching. Oil futures might get a technical challenge at the $50 level.

Gold

FIGURE 2: MARCHING IN PLACE.

Gold futures, tracked through Monday on the TD Ameritrade thinkorswim® platform, have gone a long way and at the same time not very far over the last two weeks. Source: CME Group. For illustrative purposes only. Past performance does not guarantee future results.

Get Your Pencils and Scorecards Ready: Here’s the lineup for the rest of the week’s Fed speakers, including Fed Chair Yellen. The “hawk” and “dove” designations are courtesy of Sam Stovall at CFRA. Today, Kansas City Fed hawk Esther George will speak on the economy and the Fed, while Cleveland hawk Loretta Mester discusses the "Outlook and Communications," and Boston dove Eric Rosengren discusses banking from Bali, Indonesia. On Thursday, Yellen is scheduled to deliver opening remarks for a Fed conference on the economic futures of children and communities, while Minneapolis Fed dove Neel Kashkari discusses education and achievement gaps and Dallas Fed's Robert Kaplan takes part in a Q&A session on the outlook and policy. Finally Chicago Fed President Charles Evans opens a Fed conference on Friday and St. Louis Fed hawk-dove James Bullard discusses the economy and policy. So now it’s time to… Play Ball!

Gold's Lost Month? If you slept through the first three weeks of March, woke up yesterday and checked the gold market, you might say, "Hmm; what a dull month. Hasn't moved at all." The yellow metal inched higher Monday to its highest levels in 2 1/2 weeks, and sits just a few dollars shy of $1,240 an ounce, where it started the month. But looking at the chart, the same investor might rub their eyes and notice that $40 free fall and spike before and after last week's Fed meeting. With interest rate and political uncertainty on both sides of the Atlantic, gold seems to be drifting back to that $1,240 level, around which it seems to pivot these days.

Car Taxes: Keep an eye on the automobile sector should Congress pass a tax plan that includes an import tax, one of the proposals under discussion. Such a tax could add $2,000 to $2,500 to the average price of a vehicle sold in the U.S., the Detroit Free Press recently reported. Car prices are already at record highs, and wages, while showing some signs of growth, aren’t necessarily jamming the accelerator quickly enough for consumers to easily handle $2,000 extra for a new vehicle with average prices already at $35,000. There’s a chance such a tax could raise prices and reduce sales so much that the U.S. could lose manufacturing jobs, according to the Motor Equipment Manufacturers Association, which represents auto supply companies. Many raw materials for U.S.-built cars come from Canada or Mexico and could be subject to the import tax. There’s no guarantee that this tax will become reality, because many retailers oppose it. Industries in favor of the tax say it might improve the U.S. trade playing field. Stay tuned.

Good Trading,
JJ
@TDAJJKinahan

Economic calendar

FIGURE 2: THIS WEEK'S ECONOMIC CALENDAR.

Source: Briefing.com

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JJ Kinahan

JJ began his career in 1985 as a Chicago Board Options Exchange...

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