Investors keeping powder dry, as macro data and geopolitics drive markets
Investors spent much of late last week digesting Wednesday’s equity market reset in hopes that the Trump trade remains intact. Unfortunately, Thursday and Friday provided little in the way of encouragement, as prices languished and the GOP’s efforts at repeal and replace failed miserably.
Adding additional overhang to the market is crude oil pricing, which remains susceptible to a trade lower. As a result, equity prices barely held on, closing within a fraction of Wednesday’s close. As I have mentioned over the past three weeks, my sense is that the momentum trade that has rifled equity prices higher since early November has dissipated, while equity market gains have stalled. Last week’s trade put a point on that. In many respects, the tapering off of the Trump rally is not at all unexpected. In fact it is due.
As mentioned above, the S&P 500 (^GSPC, SPY) and Dow (^DJI, DIA) Industrials have both posted solid quarterly results thus far this year with one week of trading left in the period. Since the onset of 2017, we have received an additional rate hike by the Fed, solid quarterly economic results, better-than-expected Q4 EPS results and solid equity market gains for investors.
Economic macro data and geopolitics will drive the markets short-term
This week, with earnings season all but concluded and Q1 earnings season still two weeks out, expect economic data and politics to dominate. At the top of that list will be Thursday’s final Q4 GDP data. Consensus is calling for 2.0% annualized, up from the first two readings which were 1.9%. Q4 2016 corporate profits, also scheduled for release on Thursday, will be viewed in terms of the previous year-over-year comparison of 4.3%.
This Wednesday’s EIA Petroleum Status Report will be closely watched, given that last week we saw crude inventories jump by 5 million barrels. Increased US production, as framed by the weekly Baker-Hughes Report (which stand at a cycle high), in conjunction with an increasingly ineffective OPEC production curb, have driven energy prices lower. They’re acting as a wet blanket on the energy sector and the broader market. The Pending Home Sales data for February, due out Wednesday, is expected to rise by 1.8%. In that event, the housing sector should continue to outperform as we head deeper into the spring sales season.
I suspect this week’s price action will remain underwhelming, though there is always a chance we could see some window dressing heading into quarter close. Window dressing aside, investors will likely keep some powder dry as geopolitical variables dominate the news. And, Q1 earnings season is now only two weeks away.
