What Could Spoil the Bulls’ Run?

The economic plans of Donald Trump have stoked the flames of Wall Street’s record breaking tear, though some investors are concerned that the newly elected president’s first congressional appearance this coming week is likely to imperil the latest rally in the event it becomes evident that it will take time to put into motion the Oval Office’s agenda – or alternatively, if Trump’s plans come across as being simply too vague.

The S&P 500 has soared almost 10% since the November 8th elections, optimism having bounded regarding the Republican administration’s agenda, which includes among other things, a substantial tax reform package.

At the same time, until now, little in the way of detail has surfaced, and some investors believe that Trump will need to provide more than just generalized headlines when he addresses Congress this coming Tuesday. In the event he shows up and all he’s got to say is, “It’s going to be beautiful,” we’re likely to see the first fault lines opening in the heretofore untouchable uptrend.

Until now, Trump has said enough to push stock indexes to new all-time highs. Last week, the Dow Jones recorded gains day in and day out, wrapping up its longest winning streak in 30 years. The latest gains, though, have caused valuations to become expensive. The S&P 500 is traded at a 12-month forward PE of 18, above its historical average of 15.

In Trump’s speech on Tuesday, the market wants to hear about concrete tax reform plans. In the event the market starts casting doubt on Trump’s ability to execute his promises, there’s a chance we’ll see a 5% stock market correction. Investors will also be on the lookout for the first hints of Trump’s economic plan. U.S. Treasury Secretary, Steve Mnuchin, sketched out a highly aspirational plan on Thursday for cutting taxes by August. Investors want clear signs that the impact of the tax cuts will be felt already this year.

Leading up now to Trump’s congressional appearance, stock market options still don’t signal significant movement. As of now, options market traders are pricing in movement of 0.9% by Wednesday’s closing bell.

Despite the fact that some investors are keen to hear specific details about economic plans, the big picture here is really the White House. The whole stock market rally is founded on the assumption that the White House has adopted a policy stance supportive of businesses. That being the case, you can safely say that the details are little more than background noise as long as the administration provides the goods.

This coming week there will be at least 8 appearances on the part of Federal Reserve bankers, the main attraction being the speech of Fed Chairwoman, Janet Yellen, in Chicago on Friday. Investors will want to hear about any sign that points to the chances of a rate hike come the next Fed meeting on March 14th. This week, the Economic Diary will be packed to the brim. The Fed’s preferred indicator for tracking inflation, the PCE index, will be released on Wednesday. On Monday, durable goods order figures will be released. On Tuesday, be primed for a revised reading of Q4 2016 GDP. Then, on Wednesday, the Supply Managers’ ISM manufacturing index will be released.

The earnings report is nearing the end, though, that notwithstanding, a number of large retailers are expected to report this week, including Target (TGT) and Costco (COST).

The issue of the year, Snapchat (SNAP) is expected to command a lot of attention this week, the online messaging firm expected to raise over $3.5 billion this week, going public on Thursday. As of now, there’s been strong demand of $10 billion for the issue, which will enable the company to either raise its issue price which now stands at $14-$16, or alternatively, issue more shares. As of now, based on current pricing levels, its market cap is $20 billion.

Weekly Summary: The Dow Jones rose 0.98%. The S&P 500 ended the week up 0.86%, the NASDAQ tacking on 0.78%.

Have a great trading week!