Investors will turn their attention this week toward economic data, Fed Speakers and President Trump’s First Speech to Congress. On the economic calendar we have a heavy week with Consumer Confidence, Durable Orders, 2nd estimate of GDP and the ISM Non-Manufacturing PMI.
GDP Second Release: On Tuesday (2/28), we get our second release of US GDP for the 4th quarter. We get 3 releases, Advance, Preliminary and Final. The first release is the most impactful. However, if a line item were to surprise in the Preliminary or Final, the markets can react accordingly. The first release came in at 1.9% with inventories making up 1%. If we get better than expected information with this reading on the consumer, we can expect to see equities go higher. If the consumer comes in weaker, expect equities to fall.
Wild Card Trump: Get the Popcorn ready!!! Tuesday night (2/28) President Trump has his first televised speech to Congress. Investors will be listening for any details as to potential tax reform and other executive orders that he may say are in the pipeline in the near future. (On the sidelines, drinking games will be established for some references such as Russia, or Obamacare and if any Congressman yells out in his speech “You Lie.”) Investors will also continue to watch Donald Trump’s twitter page as his tweets continue to impact individual stocks or FX. The market will also continue to watch his executive orders. These executive orders have the potential to not only affect a sector but the entire market as his protectionist policies have sent airlines, leisure and tech companies lower. Traders will continue to monitor the latest executive orders and the criticism they receive from the entire world.
Fed Members Speak: This week, we have 5 FOMC members scheduled to give speeches across the country and Fed Chair Janet Yellen. Investors will continue to listen to potential hints as to future interest rate hikes. The Fed Chair finishes the week off with a speech about the US Economic Outlook at the Executives Club of Chicago. Any positive comments or negative comments by her could see the markets react. I am hoping that her prediction to the US economic outlook is “Pain.”
Low Volatility: The S&P has now gone 49 days without a 1% intraday move: The longest streak in history. The VIX continues to stay at historically low levels since the election. This is well below its long term average of 20. However, the S&P and Nasdaq still continued to set new all-time highs including this week. The Dow even had a 11th record close in a row. This had only happened one other time in the Dow’s history.
We are expecting Trump to make some kind of announcement in the next week or two around tax reform. Until details come out, expect this sideways to higher pattern to continue. However, Trump may be listening to Fox News and hear from the business segment about the 49 days without a 1% move. Trump could say “Hold my beer” and send out a tweet.
Services PMI: PMI readings from across the globe are due out this week. Traders will watch these readings as to see if the Trump rhetoric around protectionist policies resonates. Any unanticipated jump in a reading could send the markets higher and their respective currency stronger.
Gold: Gold is now at 3 month highs as the US Dollar pulled back on Wednesday (2/22) after the latest Fed minutes hinted at rates rising, but not as fast as initially expected. Gold continued higher on Thursday (2/23) as comments by the Treasury Secretary Steve (Street Fighter 2 sounding) Mnuchin also pushed the US Dollar lower as tax reform does not seem to be progressing. Traders will be listening to the latest Fed speeches to hints at timing of the hike. The longer they put off raising interest rates, we will see the Dollar pull back, sending gold higher. However, if Street Fighter 2 Mnuchin were to give us details about potential fiscal policy, we could see a reversal pushing the dollar higher and gold lower.