Donald Trump could influence the 'Trump rally' in the week ahead

Donald Trump
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Donald Trump

President-elect Donald Trump takes center stage with his first postelection news conference Wednesday, and traders are looking for more details around the promises that have helped drive the Dow up 9 percent since Election Day.

Another test for the rally will be the start of fourth-quarter earning seasons, and first up are financials, the leaders of the Trump rally with a near 18 percent gain since Nov. 8. JPMorgan Chase, Bank of America, Wells Fargo, PNC Financial and others report Friday.

Earnings for the S&P 500 are expected to increase by 6.1 percent in the fourth quarter, but the S&P financial sector earnings are expected to have the biggest gains, with earnings up 15.7 percent, according to Thomson Reuters.

The sector has bounced hard on the prospect of higher interest rates and a steeper yield curve, which would help bank profitability. The stocks also are rising on Trump's vow to end excess regulation. Besides banks, names like Goldman Sachs and Morgan Stanley are in that financial group and both are trading at near decade highs. Goldman is up 35 percent since the election, and has been leading the Dow.

"I suspect earnings are going to be pretty darn good, but the problem is expectations are going up too," said James Paulsen, chief investment strategist at Wells Capital. "Given the movement in some of these stock prices, you better hope they're outperforming expectations."

President-elect Trump has been credited with being a major catalyst behind the market's rally since election day, though some analysts say the market and economy were already poised for improvement.

"Right now the market has been floating on the illusion of optimism, and does that turn into a false sense of security?" said Scott Redler, partner with T3Live.com.

Redler said Trump sparked the rally when he spoke in the early hours of Nov. 9. That victory speech has been credited with turning collapsing stock futures into a two-month rally. Trump focused on the pro-growth programs, like infrastructure spending and corporate tax breaks, that Wall Street has latched on to. He did not dwell on tariffs or trade proposals that had made Wall Street nervous before the election and are still a concern for some strategists.

"All eyes will be on [President Barack] Obama's farewell speech Tuesday and then President-elect Trump's first press conference on Wednesday," said Redler. "We'll be trying to figure out what his tone is like. It will be a kind of pre-game for the inauguration. Traders would like the tone to be like he had in his election speech when he was claiming victory, versus what we've seen in the last few sessions."

In the past week, Trump has repeatedly doubted the intelligence community's findings on Russian interference with the election. The intelligence findings concluded that President Vladimir Putin ordered an "influence campaign" but it turned into a "clear preference" for Trump.

After a briefing with U.S. intelligence officials Friday, Trump said other nations like Russia and China are consistently attempting cyber break-ins against U.S. institutions, and he would form a team to combat these attacks. He also said there was no impact on the outcome of the election.

In some of his first dealings with Congress in the past week, he called Sen. Chuck Schumer of New York "head clown" in a tweet. He has also criticized car companies, including Toyota, this past week. He warned the Japanese company in a tweet that it will face hefty taxes at the border if it tries to import cars into the U.S. from a new plant in Mexico.

"I'd be more worried about his tweets than his press conference," said Paulsen, adding the press briefing is "going to capture more attention. We've never had one since he's been elected president."

Besides the news conference, there will be confirmation hearings for the Trump Cabinet, including former Exxon CEO Rex Tillerson as secretary of state.

Wall Street economists and strategists have been trying to handicap the Trump agenda, and put time frames around when his programs could start spurring more growth. Expectations vary on when there will be some impact.

They also want to see a timeline on the tax overhaul, since companies will be more inclined to start spending and taking other action if they see a concrete plan. Because of the unknowns, some economists do not forecast much impact at all this year, yet the stock market has run higher on the prospect of positive change.

"I would think there would be a lot of questions as to what his agenda is, what he looks to accomplish in his first 100 days. It could have some short-term impact, in terms of what he chooses precisely. I don't think this is going to have much lasting impact, but it could create some volatility," Paulsen said.

Besides earnings, there are also a few key economic reports including retail sales, consumer sentiment and producer price inflation data, also all on Friday.

Stocks hit some bumps in the first week of the new year but finished strong. The Dow came within 0.37 of a point of Dow 20,000 on Friday. It ended the session at 19,963 and a gain of 1 percent for the week. The S&P 500 was up 1.7 percent for the week at 2276, after hitting a new all-time high of 2,282 intraday. The Nasdaq gained a solid 2.5 percent to 5,521 as some big tech, like Amazon.com, played catch up.

China could also be a big influence in the week ahead. Traders will continue to watch the volatility in the yuan, which had a swift run-up in the past week before pulling back.

"The big thing is China's reserves. They're trying to thread a pretty small needle in trying to keep the exchange rate stable, trying to keep reserves at around $3 trillion as a confidence thing and to have flexibility in policy," said Robert Sinche, chief global strategist at Amherst Pierpont. Reserves data were to be reported over the weekend, but there is also trade data on Friday.

Sinche said the market will be looking to see if exports are gaining any momentum. "The market thinks they're going to be losing some momentum in December," he said. "[But] there's definite signs things have improved across the Asian region."

"I think the world's come to the realization that growth has picked up at the end of the year. Some of the data coming out of Europe is pretty robust," he said. "The question is going to be how much inflation is there going to be in the system. It looks like so far it's primarily an energy measurement phenomena. Except in the U.S., where I think there are some capacity pressures and pressures on wages."

Inflation has become a bigger theme for markets and was very apparent in the December hourly wages growth of 0.4 percent, providing the biggest boost in year-over-year wage growth since 2009. Economists expect wages to continue to rise. They also expect to see a blip higher in inflation in the next several months because oil and gasoline prices are much higher than they were at the same time last year.

What to Watch

Monday

Earnings: Acuity Brands, Commercial Metals, Global Payments, Barracuda Networks

9:00 a.m. Boston Fed President Eric Rosengren

12:40 p.m. Atlanta Fed President Dennis Lockhart

3:00 p.m. Consumer credit

Tuesday

Earnings: Synnex

6:00 a.m. NFIB survey

10:00 a.m. Wholesale trade

10:00 a.m. JOLTs

1:00 p.m. $24 billion 3-year note auction

Wednesday

Earnings: KB Home, MSC Industrial

1 p.m. $20 billion 10-year note auction

Thursday

Earnings: Taiwan Semiconductor, Infosys, Shaw Communications, Delta Airlines

8:30 a.m. Philadelphia Fed President Patrick Harker

8:45 a.m. Chicago Fed President Charles Evans and Atlanta Fed's Lockhart on a panel

8:30 a.m. Initial claims

8:30 a.m. Import prices

12:30 p.m. Atlanta Fed's Lockhart

1:00 p.m. $12 billion 30-year bond auction

1:15 p.m. St. Louis Fed President James Bullard

1:45 p.m. Dallas Fed President Rob Kaplan

2:00 p.m. Federal budget

7:00 p.m. Fed Chair Janet Yellen holds town hall with educators

Friday

Earnings: JPMorgan Chase, Bank of America, PNC Financial,Wells Fargo, First Republic Bank, BlackRock

8:30 a.m. Retail sales

8:30 a.m. PPI

9:30 a.m. Philadelphia Fed's Harker

10:00 a.m. Consumer sentiment

10:00 a.m. Business inventories

What to Watch