Well, that took long. All that American First banter and it took less than 100 days for Trump to bomb another country.
Investors will spend the week watching to see if the Syria incursion becomes something bigger or if it’s just another blip on the map. Domestically, we have Michigan Sentiment and PPI during the holiday shortened week.
Fed: In the latest Fed minutes released latest week, the Federal Reserve said it expects to reduce its huge investment holdings later this year. Currently, the Fed holds over $4 Trillion in Treasuries and mortgage securities. The markets have already factored in 3 interest rate raises this year, but not the unloading of the balance sheet. Based on its timing, the unloading of the Fed’s portfolio would likely put additional upward pressure on interest rates. This week, investors will be listening to the latest speeches from Fed Chair Janet Yellen (due to speak on Monday, 4/10) as to any hints on the timing of the unwinding of the Fed’s assets. Besides trying to figure out which assets they would sell first, the Fed will also have to decide if they will sell a percentage or a fixed dollar amount of Treasury and mortgage securities. Unfortunately, the big question is, who would be crazy enough to buy $4.5 Trillion, over 1 years’ worth of the US budget.
Earnings: The unofficial start of earnings season commences this week with Alcoa due to report after the close Tuesday (4/11). So far for Q1, we have seen 80 negative EPS preannouncements issued by S&P 500 companies compared to 32 positive EPS preannouncements. It’s pretty early in the season, but so far we have had 23 companies in the S&P 500 report earnings for Q1. 74% have reported earnings above analyst expectations and 52.2% have reported revenues above expectations, according to Thomson Reuters I/B/E/S. Investors will watch to see how this plays out for the quarter.
Syria: Start the war mongering: President Trump, still in his first 100 days promoting America First decided to sound the war drums. After the military strike in Syria last week, algos initially reacted negatively sending futures much lower, but then later recovered. Gold is also higher and any additional strikes will push the precious metal even higher. Aerospace and Defense companies will also shoot higher. Should the war drums become louder, we could see the markets pull back. Besides Syria, the markets will monitor the latest rhetoric from the administration regarding North Korea. This blog is supposed to follow the markets and not really go into geo politics. But here’s a quick history lesson. In the Korean War, the US (along with a UN coalition of countries) sent in a military force to fight the communists and was about to declare victory. Then 300K Chinese military men unexpectedly walked across the border into North Korea fighting the US until a draw was declared. Does anybody not expect a repeat by China if the US comes marching on its border and now there’s a 1.5 BILLION of them?
University of Michigan Consumer Sentiment: Market moving economic data is pretty quiet for the week except for Michigan Sentiment scheduled for Thursday (4/13). Since the election, consumer sentiment has jumped on the hopes that Trump’s policies of reduced regulation and lower taxes will put more money in people’s pockets. In recent readings, the soft data has slightly scaled back, but is still near multi year highs. If the reading comes in above expectations, traders will point to consumers still expecting tax reform (even with the healthcare set back) and many regulations being suspended. If the reading comes in below expectations, traders will point to the healthcare failure and his promise of tax reform dropping.
Good Friday: Markets in the US and across Europe are closed for Good Friday. CPI and Retail Sales are still scheduled to be released on Friday even with the markets closed. That means investors will have to wait until next Monday (4/16) to react to the data.
This week’s edition was again brought to you by the MTA. “Even if your head is stuck in a door, don’t expect us to do something about it.” Their latest motto after a woman’s head was wedged between subway doors and an MTA worker is seen strolling passed the trapped woman in the video taken by a strap hangar. WAY too much to ask for the strap hangar to put their phone down and actually try to help. The MTA also thanked themselves by cancelling all of your trains on the LIRR for most of the week so they could spend more time at their second vacation house ahead of the Passover and Easter Holidays.