Market Insider

In stagnant market, traders watching these reports for clues

Markets could break to upside here: Pro

As Wall Street awaits details on taxes and digests developments on trade policy, traders will eye economic reports Tuesday for continued signs of growth.

"The question is, can we sustain the better economy regardless of the policies?" said Ben Pace, CIO at HPM Partners.

"A lot of the run-up in the equity market was unwarranted by the economic [reports], as opposed to just changing of policy," Pace said.

Housing and manufacturing data are due Tuesday morning, ahead of key reports on durable goods and gross domestic product scheduled for release Friday.

Existing home sales for December are expected to decline slightly to an annual rate of 5.5 million units, according to a Reuters consensus estimate. In November, the annual rate of 5.61 million was the quickest sales pace since Feb. 2007.

The Markit manufacturing PMI flash is expected at 54.5 for January, after posting a final read of 54.3 for the prior month.

In addition to the data, investors will be carefully watching for any developments on policy in President Donald Trump's second business day in office.

The uncertainty around how Trump's administration will unfold weighed on stocks Monday as the major indexes ended well off session lows Monday but failed to hold gains. The closed 6 points lower at 2,265 with energy stocks falling more than 1 percent as the greatest laggard.

Trump officially withdrew from the Trans-Pacific Partnership Monday as he'd promised during his campaign.

U.S. Senator John McCain said in a statement that the decision to withdraw would "have lasting consequences for America's economy."

"I think that has the market a little on edge," said Robert Pavlik, chief market strategist at Boston Private Wealth. It's "keeping buyers on the sidelines."

Any "plan for taxes, plan for health care, that could push stock prices up fairly quick," Pavlik said.

Additional announcements on trade policy should come in the week ahead, White House spokesman Sean Spicer said in a press conference.

Concerns about the new administration's protectionist tilt have also supported a safe-haven trade.

Gold spiked to a two-month high Sunday night, and the U.S. dollar index extended two days of declines to hit a fresh low Monday going back to Dec. 8, 2016. The Japanese yen gained more than 1.5 percent against the dollar.

Treasury yields edged lower. The 10-year yield was last near 2.4 percent and the two-year near 1.14 percent, its lowest in nearly a week. The Treasury is set to hold an auction of two-year notes Tuesday afternoon.

"I think the somewhat negative tone on trade has the bond market recalculating a bit how this all plays out," Brandon Swensen, co-head of the fixed income desk at RBC Global Asset Management, said in an email.

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Trump also said Monday in a meeting with business leaders he can cut regulations by 75 percent or more. The president also reiterated promises to cut taxes while imposing a border tax on U.S. companies bringing goods back from overseas producers to the U.S. to sell.

Those proposals, as well as promises of infrastructure spending, helped stocks surge after the election to all-time highs. But investors are still waiting for details.

"I'm most excited to get plans. What is going to be the tax plan?" said JJ Kinahan, chief market strategist TD Ameritrade.

A lot of traders are saying, "give us something concrete to trade on," Kinahan said.

U.S. stocks have traded in a range since reaching a postelection peak in the middle of December. The S&P 500 is down about 0.4 percent from that time, but still up about 5.7 percent since the election. Financials, the sector that led much of the postelection rally, have also pared their gains and are 1 percent lower year to date.

"I do think it's a lot of wait and see," said John Caruso, senior market strategist at RJO Futures. He expects stocks could still trade about 2 to 3 percent higher from here.

"I don't see policy affecting anything," he said. "Let the data lead the way through the week."

3M, Alibaba, DuPont, Johnson & Johnson, Travelers Cos., Verizon, Lockheed Martin, Corning, DR Horton, Kimberly-Clark, AK Steel and Janus are among those set to report earnings ahead of the open Tuesday.

Texas Instruments, Samsung Electronics, Alcoa, Capital One, Discover Financial, Intuitive Surgical and Stryker are scheduled to post quarterly results after the close.