Market Strategy Radar Screen Weekly January 17, 2017

 Sleep Walk? No Way

Not likely to be a sleepy week ahead as traders and investors return from a three-day weekend.

In addition to a busy speaking calendar, the Federal Reserve releases its Beige Book (anecdotal summaries of the economies monitored by the Fed’s regional branches across the country) on Wednesday. With the next FOMC meeting scheduled for February 1st (just a little more than a week after the Presidential Inauguration), we’d expect each Fedspeak event to be well-covered, with comments parsed essentially in real time by journalists, pundits and market participants.

In addition to the aforementioned stateside calendar events, the fourth-quarter earnings calendar carries considerable weight this week as a number of widely followed corporate names representing key sectors report results and likely provide investors with a sense of what may lie ahead in 2017.

(Among the companies reporting this week are United Health Care, Morgan Stanley, CSX, United Airlines, Netflix, Goldman Sachs, Citigroup, American Express and IBM.)

In Europe, the World Economic Forum convenes in Davos, Switzerland today. The annual event, which brings together government officials, business leaders, educators, celebrities and the media, will likely provide a slew of commentary for investors to consider regarding the changing of the guard at 1600 Pennsylvania Avenue, along with varied projections of what the implications of the new administration’s anticipated policies might be for countries and regional economies around the world.

The ECB (European Central Bank) announces its benchmark rate decision on Thursday with ECB President Mario Draghi speaking at a press conference afterwards. Investors will be looking for cues as to the ECB’s positioning in the period that lies ahead and what it could mean for the European economies and the markets.

All of the above, and of course more in a globalized landscape, greets investors returning from the Martin Luther King three-day holiday weekend stateside.

Last week saw markets further digest the stock market rally that followed the stateside Presidential Election in November. US Stocks traded somewhat mixed with an overall positive bias last week as the Dow Jones Industrial Average, the S&P 500, the S&P 400 (mid-caps), the Russell 2000 (small-caps) and the NASDAQ Composite (a little more than 40% weighted in technology-related names) respectively returned - 0.39%, -0.10%, +0.32%, +0.35% and +0.96%.

The dollar slipped 1% against the DXY index (a basket of six major trading partner country currencies) last week through Friday. The 10- year Treasury rallied in price, sending its yield lower to 2.4% at last week's close.

With international markets open around the world Monday, the 10-year US Treasury yield slipped slightly lower from Friday’s close with the dollar easing against the yen and the euro in overseas trading.

From our perch on the market radar screen, the stateside equity markets over the last week appear to have moderated somewhat in momentum in response to the particularly strong post-election advance and in anticipation of the inauguration.

We’ll look for the market near term to seek out a catalyst for determining which direction it will take in the weeks ahead from a mix of Q4 earnings results, economic data crossing the transom on a day-today basis, comments from Fed officials, the direction of the bond market, the processing of administration appointments via congressional hearings as well as policy-related comments from the new administration and the new President’s tweets from the Oval Office.

Patience and a sense of how portfolio positions might perform near term are in our opinion key investor considerations in the current transitional period, which may show the market vulnerable near term to an increase in volatility.

Prospects for tax reform (both individual and corporate), regulatory reform, fiscal policy stimulus, and for repatriation of at least some US multinational profits may well offset some level of near-term nervousness and risk tied to what will happen with the Affordable Care Act, and how the tenets of long-standing trade agreements will be addressed as the process of a transition of leadership and style takes place in Washington, DC.

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