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Market Update

Spell Out Relief: French Vote Gives Lift But Tax Reform, Earnings Now In Focus

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April 24, 2017

(Monday Market Open) A relief rally looks likely Monday after the French centrist candidate made it to the next round of voting. European stock indices and the euro scampered higher as risk-haven assets like bonds and gold pulled back.

The first-round victory by Emmanuel Macron means a run-off between him and the far-right candidate on May 7, and the French stock market hit nine-year highs. While the markets seem in a celebratory mood now because Macron — who supports keeping France in the European Union and on the euro — leads in the polls, remember Brexit and the Trump election last year. Both of those outcomes told us polls can’t always be trusted. So the next round of voting is likely to remain a focus in coming weeks.

The euro hit five-month highs against the dollar after Sunday’s election, and that could give some commodities a boost. But crude oil didn’t seem to get too big a lift in the early going, staying below $50 a barrel.

Now that the French vote is out of the way for the moment, attention might shift to some key political events here in the U.S. Last Wednesday, President Trump helped give stocks a boost by promising to release a tax plan this week. If that doesn’t come, it could weigh on the market.

And Congress must work with Trump this week to avoid a possible government shutdown. If progress doesn’t start appearing on that front, it could be another pressure point for stocks. A shutdown could send a signal that government just can’t get anything done, and that wouldn’t be a good message for investors looking for health care, tax, infrastructure and other reforms from Washington.

The market’s retreat last Friday following Thursday’s big gains likely reflected many investors taking risk off the table ahead of the French election. Those losses came despite positive data from the housing front, with the government reporting that existing home sales rose to their highest levels in more than 10 years. Sales climbed nearly 6% from a year earlier and prices also rose sharply.

It’s one of those weeks when earnings come fast and furious, meaning we could see increased volatility. It would be useless to list all the companies reporting, but by the time the week comes to an end, quarterly results from a significant percentage of big names could give investors a real sense of where things stand. Two classic American consumer brands, McDonald’s (MCD) and Coca-Cola (KO), get us started off on Tuesday morning before the open.

Other key companies with earnings to watch this week, in no particular order of importance, include Boeing (BA), Lockheed Martin (LMT), Starbucks (SBUX), Amazon (AMZN), Bristol-Myers (BMY), Caterpillar (CAT), AT&T (T), Exxon Mobile (XOM), General Motors (GM), and numerous others. Stay on your toes!

Crude

FIGURE 1: CRACKING CRUDE

Crude oil, tracked here through Friday on the thinkorswim® platform from TD Ameritrade, has fallen back under $50 a barrel as U.S. drillers added new rigs for the 14th-straight week. Still, oil remains slightly higher over the past month even as the S&P 500 (purple line) has been somewhat flat. Data source: CME, Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

Fed’s Fischer Reflects on World Economy: Asked Friday on CNBC whether he’s optimistic about the global economy, Fed Vice Chairman Stanley Fischer noted that improved situations in both China and Europe might be propelling better growth. He also believes the U.S. economy’s recent stumbles and apparent slow growth in Q1 generally reflect the stormy March winter weather, as well as possible statistical analysis flaws in how the government tracks growth. He noted that several recent Q1s have had slower than expected growth, and he sounded optimistic about coming quarters.

Speaking of Growth, it’s Almost GDP Time: This coming Friday brings the government’s first estimate of Q1 growth, and sluggish may be the operative word, judging from predictions. The closely watched Atlanta Fed GDP Now indicator predicts just 0.5% growth in Q1, which would be down from 2.1% growth in Q4 and 3.5% in Q3. GDP growth in Q1 of 2016 was also below 1%, and that proved to be the weakest quarter of the year. Second-quarter economic growth outpaced Q1 growth every year from 2014 to 2016, though past isn’t necessarily prologue.

Looking for Hard Data? While earnings and fall-out from the French election may dominate conversation this week, the next few days also offer some of the so-called “hard” data as well. The question is whether some of these hard data points might shed light on whether soft data like consumer confidence is translating into consumer spending. Key data coming up include Tuesday morning’s release of new home sales for March; pending home sales on Thursday, and March durable orders, also Thursday. Chicago PMI on Friday morning might give a sense of how businesses are doing, while Michigan sentiment on Friday offers more “soft” data.

Good Trading,
JJ
@TDAJJKinahan

Economic Calendar

FIGURE 2: THIS WEEK'S ECONOMIC CALENDAR.

Source: Briefing.com

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