Political drama that erupted last week with Trump’s firing of FBI Director Comey will make the path for corporate tax cuts and/or a foreign profit tax holiday less likely, as Republican support behind the President maybe fraying at the margin. This week there was some question of whether or not Trump inappropriately disclosed sensitive information to the Russians regarding Isis , although this appears to be fine.
Second, the data Friday was not especially good, and the CPI and retail sales reports were not the kind of reports that make us think we are going to see a reflationary economic acceleration power stocks higher from here.
Meanwhile, retailer earnings this week were simply horrid, and well below already-low negative expectations.
Again, for context, all that matters, because with S&P 500 valuations at 18X 2018 earnings (PE-price/earnings ratio)it’s going to take a positive catalyst to push stocks higher. That catalyst must come from:
1) Washington (via corporate tax cuts), 2) The economy (via higher inflation and better data) or 3) Earnings (which will lower the multiple on the market let the S&P 500 push higher). So, last week the chances of any of the three were marginally reduced, and markets reflected that reality.
Economic data last week was mixed in total, but from a market standpoint the takeaway was that it was neither strong enough to support a push through 2400 in the S&P 500(near term resistance) , nor weak enough to generate any real selling. So, the net effect is that the market is left wondering whether the economic acceleration can continue, or whether we are losing momentum.
It’s a given that inflation pressures continue to build, but all the statistical data implies they are building very s-l-o-w-ly. And given the Fed watches the statistical data, nothing in the inflation numbers appear the Fed would be thinking about hiking more aggressively or delaying the June rate hike. Stay tuned…
Bloomberg, Google finance
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