After a chaotic week for markets, this coming one will be a short week as markets in the US are closed today for Presidents Day.
Last week, the Dow hit a record high each day, though the most notable upward moves came Tuesday and Wednesday. Wednesday’s close also marked the fifth straight day that each of the three major US equity indexes hit a record, the longest streak since 1992. And this milestone prompted a tweet from, of course, President Donald Trump.
Last week, the theme of diverging attitudes towards Trump from the market and the political establishment continued. And likely will for some time.
As Bespoke Investment Group wrote in a note to clients on Friday, “There couldn’t be a more inverse correlation between the media hysteria and the action of the stock market since Trump won back in November.”
Since Trump’s election, the S&P 500 is up 9.7%. Only JFK had a better 100-day post-election performance among newly elected presidents going back to FDR’s initial election in 1932.
Looking at this week’s main events, earnings will continue pouring in with Tesla (TSLA) highlighting the week, though the rush of retail earnings should also be closely watched after last week’s better than expected retail sales figures.
Dow members Home Depot (HD) and Walmart (WMT) will be the highlights on the retail side, but this week will also give us results from Macy’s (M), Kohl’s (KSS), Nordstrom (JWN), Gap (GPS), and J. C. Penney (JCP).
On the economic data side, Wednesday’s afternoon release of the minutes from the latest Federal Reserve meeting are likely to have the market’s attention, particularly in the wake of last week’s testimony from Fed Chair Janet Yellen.
Many have long looked for the Fed to make a firmer mention of how it views any potential fiscal stimulus out of the Trump administration, but in a note out on Friday, Ethan Harris at Bank of America Merrill Lynch said, “We expect only a brief discussion of risks from fiscal policy given that there is little clarity on the potential policies.”
Elsewhere, we’ll get updates on consumer confidence, the housing market, and both the services and manufacturing sectors of the economy.
Economic calendar
Monday: Markets closed.
Tuesday: Markit flash manufacturing PMI (55.2 expected; 55.0 previously); Markit flash services PMI (55.8 expected; 55.6 previously)
Wednesday: Existing home sales, January (+0.9% expected; -2.8% previously); FOMC Minutes
Thursday: Initial jobless claims (240,000 expected; 239,000 previously); FHFA home price index, December (+0.5% previously)
Friday: New home sales (+6.5% expected; -10.4% previously); University of Michigan consumer confidence, February (96.0 expected; 95.7 previously)
What corporate America is saying
Fourth quarter earnings season is almost over.
According to data from Credit Suisse out Friday, S&P 500 earnings in the fourth quarter are tracking for 8% growth over last year. Expectations for 2017 earnings, meanwhile, now stand at 10.3%, down a bit from the 11.2% growth forecast at the beginning of this year.
The biggest topic of discussion, as is the case basically every earnings season, hasn’t been Donald Trump, but the impact currency markets are having on profits and revenues. Managements simply care more about what affects them here and now than what may or may not come out of Washington.
As Brian Belski at BMO Capital Markets wrote in a note out earlier this month, “There is a very good chance that the year of surprises that 2016 represented will likely roll over into 2017. After all, investors have been climbing the wall of worry for eight years and counting.”
But Trump — and the four major pillars of his economic proposals, tax reform, regulation, fiscal stimulus, and new trade deals — is still a big topic of conversation.
In a note out earlier this week, David Kostin and the equity strategy team at Goldman Sachs compiled their latest “Beige Book” for S&P 500 companies. Modeled after the Federal Reserve’s Beige Book — which is a collection of economic anecdotes from around the country — Goldman’s version tracks executive commentary on earnings calls.
On taxes, Goldman writes that, “Managements are optimistic about potential corporate tax reform, but are concerned about the controversial border-adjusted tax.” Trump and House Republicans appear to be out of sync on exactly what form a “border adjustment tax” would take, with Trump calling this “too complicated.”
And as an executive at FedEx (FDX) said, “We are concerned about the border adjustability concept and are trying to figure out how it would affect us directly, as well as our customers and trade and global growth, in general… This is just very destructive of trade.”
Adding that, “It’s not the proper solution to the problem. I think if they lower the tax rate and went to territorial, it would accomplish 95% of all the benefits they’re looking for and ignite a significant investment boom in the United States. It would solve the inversion problem.”
“Hopes for widespread deregulation and improved regulatory clarity are increasing confidence among some management teams,” Goldman writes.
As an executive at MasterCard (MA) said, “The positive side of it to me, [President Trump’s] regulatory announcement, the fact that he seems genuinely concerned about the manner in which regulations enacted are creating millstones for business, both small and large, to grow in the U.S. I think that’s pretty clear, and he is definitely committed to helping make it easier for businesses to open, operate and run profitably in the system.”
On increased fiscal spending, Goldman writes that, “Managers of industrial firms are enthusiastic about potential infrastructure spending and a possible end to the defense sequester.”
As an executive at UPS (UPS) said, “We believe the case for infrastructure development is clear. A world-class infrastructure is the backbone of a modern healthy U.S. economy,
and it will certainly reduce costly delays for UPS.”
Goldman did highlight commentary from Caterpillar, however, which noted in its earnings release last month that if anything does get done with infrastructure spending, 2018 is a better bet than 2017.
And finally on trade, Goldman notes that, “Management views are mixed on whether President Trump’s trade proposals will be constructive or will lead to damaging retaliation from US trade partners.”
On this front, we’d note that as markets have been pretty receptive to taking Trump’s tax, spending, and regulatory pronouncements as uninhibited goods, the risk of a “trade war” or something along those lines has also been largely discounted.
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Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland
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