Market Perspective for March 20, 2017

Bullish sentiment continued into Monday as investors took last week’s rate hike in stride. The momentum for domestic and overseas economic growth continues to signal higher prices for stocks. The S&P 500 Index has risen seven of the past eight weeks.

Over the long term, stock indices and interest rates trend in the same direction. Strong economic conditions lead to higher interest rates as well as higher growth and earnings. The markets advanced during the previous five interest rate hikes. Since 1986, the stock market has returned an average of 9.2 percent growth in the three years following an initial rate hike.

Investors believe the Fed will gradually raise rates at a more regular pace. The odds of a June hike are 60 percent; September odds are 80 percent.

February existing and new home sales will highlight a light week of data. Analysts forecast a slight decrease in existing home sales, but an increase in new home sales. Tight inventory should bolster prices. Economists expect a 1.5 percent increase in February durable goods orders, which will reinforce the Fed’s upbeat economic outlook.

Initial unemployment claims are expected to remain at historic lows. On Thursday, the Kansas City Fed Manufacturing Survey is expected to reflect a slight increase in activity.

Flash PMIs for March are due at the end of the week. Several nations, including the United States, United Kingdom, Japan and China are at or near multiyear highs. In the U.K., Prime Minister Theresa May will invoke Article 50 on March 29, formally beginning Britain’s exit from the European Union.

The House of Representatives will vote on a reform of the Affordable Care Act. The bill will free up roughly $340 billion that the GOP needs for tax cuts and reform.

General Mills, FedEx, Nike, and Micron Technology will announce earnings this week. General Mills (GIS) will report Tuesday before the market open. Consensus estimates are for earnings per share (EPS) of $0.71 based on revenues of $3.82 billion. FedEx (FDX) is expected to deliver EPS of $2.62 on revenues of $15 billion after Tuesday’s closing bell. Analysts believe the company rebounded from last quarter’s slight miss.

Nike (NKE) will also report after the bell Tuesday. Analysts forecast earnings of $0.52 per share on revenues of $8.45 billion. Micron Technology (MU) will report after the bell Thursday. The company has seen robust demand and pricing power over the past year.

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