Expect More of the Same

Happy New Year! Investors will be trickling back from their vacations this week and will have a slew of data to go through along with factors to watch in the coming weeks. On the economic front, we have ISM Non-Manufacturing PMI, the Unemployment Rate, Non-Farm Payrolls and Average Hourly Earnings.

2017 Review: That will be a tough act to follow. The broader markets had a stellar year. We saw the Nasdaq composite go up 28%. The Dow had 71 record closes for 2017 with the S&P having 62. Now, a lot of the growth was driven by the large technology firms and global economic growth, but we also had a significant change in fiscal policy for the first time in over 30 years with the passing of tax reform which helped drove the markets higher. Investors will be watching to see if we have a repeat but that will likely be difficult.

Now what with the tax Reform: Investors will get a better sense as to what firms will be doing with the potential extra profits when they have their earnings calls later this year. As most investors expect companies to be repatriating billions in cash from overseas, we still don’t know what exactly they will do with the money. Investors will likely hear announcements around additional share buybacks, an increase to their dividend, pay down debt, M&A or (the least likely but the one most of us would like to see) wage increases. With the potential repatriation of cash, which is likely to happen in the 3rd or 4th quarter of 2018 so the cash is on the books for this year, we will likely see a steepening of the Treasury Yield curve.

National Hangover Day: Markets around the world will be closed on Monday (1/1) for National Hangover Day, ahem New Year’s Day. In Japan, markets do not reopen until Wednesday (1/3) giving traders an extra day to recover from their hangover. When markets do reopen during the shortened trading week, we could see some light volume to start off, providing an opportunity for low liquidity in some companies which creates the potential for outsized moves.

Non-Farm Payrolls & Unemployment Rate: Non-Farm Payrolls, the Unemployment Rate and Average Hourly Earnings for December are scheduled to be released this Friday (1/5). Should the figure show that the economy created more jobs than expected, or if average hourly earnings jumped higher, we will likely see the markets go higher, the US Dollar go higher and oil go lower. Should these numbers disappoint, the markets will likely go lower along with the US Dollar. As in previous months, the Unemployment Rate may drop but average hourly earnings will continue to stagnate as additional more robots get introduced into a company’s ecosystem in automating jobs.  

Oil: In the last week of 2018, oil hit a 2.5 year high trading above $60 after we saw a drop in US crude inventories and continued production cuts from OPEC. Investors will watch to see if demand continues to rise with global economic output increasing which will push the price of oil even higher.

FOMC Meeting Minutes: 8:01, 8:02, 8:03. The latest Fed meeting minutes are scheduled to be released on Wednesday (1/3). Investors will be looking closely at the language of the minutes to see what may have changed from the previous FOMC meeting which saw an interest rate hike. Investors will also be looking for additional details as to the timing of a potential increase in the amount of unloading of the Fed’s balance sheet.

Manufacturing PMI: PMI readings from across the globe are also due out this week. Traders will watch these readings as potential weak readings could cause central banks to take further steps to stimulate their respective nation’s economies.

Government shut down: We’re still a few weeks away from this but investors will be watching the latest on the potential government shutdown, again. The deadline for the government budget, which has already been kicked down the road 3 times while Congress worked on tax reform, is set for January 19th. But now as we get to the potential deadline, if we are still deadlocked, we could see volatility enter the picture as a potential government shutdown looms.

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