S&P 500; US Indexes Fundamental Weekly Forecast – Focus Shifts from Holiday Shopping to U.S. Tax Reform

After posting mixed performances over a two-week period, the major U.S. stock indexes rebounded during the holiday-shortened week to close sharply higher. Investors took advantage of the thin trading conditions to send the S&P 500 Index and NASDAQ-100 Index to new all-time highs. The Dow finished just slightly below its record high.

In the cash market, the benchmark S&P 500 Index settled at 2,602.42, up 0.9%. The blue chip Dow Jones Industrial Average finished at 23,557.99 up 0.9% and the tech-based NASDAQ Composite ended the week at 6,888.58, up 1.6%.

Stocks were driven higher last week by stronger-than-expected earnings reports and expectations of a solid holiday shopping season. This put the retail sector at the forefront.

Forecast

Investors are going to continue to monitor the U.S. holiday season this week. Of particular interest will be Cyber Monday (the Monday after Thanksgiving). This is often one of the largest online shopping days of the year.

Traders are also going to refocus on U.S. tax reform. Bullish investors are hoping the President will get the opportunity to sign into law the new tax overhaul before Christmas or the end of the year. However, there may be a lengthy debate in the Senate due to differences in their tax proposal and the one passed by the U.S. House of Representatives. The main difference seems to be the timing of the corporate tax cuts. The House would like to see corporate taxes cut right away, but the Senate plan calls for a corporate tax delay until 2019.

Any signs that the debate in the Senate will turn into a long process, or some Republican opposition to the bill, will lead to uncertainty and likely a sell-off in the stock market.

On the economic front in the U.S., traders will get the opportunity to react to major reports on consumer confidence, Preliminary GDP and ISM Manufacturing PMI.

Stock traders will be most interested in what retiring Fed Chair Janet Yellen has to say about the Fed minutes on Wednesday, November 29. Yellen is scheduled to testify before Congress and she may be asked to explain her concerns over sluggish inflation and the likelihood of future rate hikes in 2018 and well as concerns over the stability of the financial markets.

Although the markets closed strong last week, we’re not too sure the mutual funds and institutions will chase the indexes higher from the get-go this week. Most were on the sidelines last week so some of the rally may have been the result of low volume and the lack of major players. Don’t be surprised if there is a pullback early in the week back to support before the indexes move higher.