Wall Street week ahead: Tax reform, tech and the latest on the housing market

The market is chugging its way into the last week of September — noted, as we know, for being the worst month of the year historically but now shaping up as just another notch in the bull market's belt.

The Dow has managed to squeak out another 1.7 percent gain that has taken the year-do-date surge to better than 13 percent.

Politics likely will be a big market influence in the days ahead, with a major congressional initiative expected this week.

President Donald Trump speaks as Senate Majority Leader Mitch McConnell (R-KY) and Chairman of the House Ways and Means Committee Kevin Brady (R-TX) listen during a meeting of Republican congressional leaders about tax reform at the White House in Washington,DC, on September 5, 2017.
Joshua Roberts | Reuters
President Donald Trump speaks as Senate Majority Leader Mitch McConnell (R-KY) and Chairman of the House Ways and Means Committee Kevin Brady (R-TX) listen during a meeting of Republican congressional leaders about tax reform at the White House in Washington,DC, on September 5, 2017.

Tax reform, finally

Congressional leaders have promised to unveil a plan this week to reform the tax system, a move that was the cornerstone of President Donald Trump's economic platform.

How that shapes up is hard to determine, but the broad strokes probably will look something like this: a cut in the corporate tax rate from its current highest-in-the-developed-world's 35 percent to something closer to 20 percent, a bevy of deductions removed, and break for middle-income earners and not those at the top end of the scale.

What those lofty plans look like in the final product is anyone's guess.

However, the market will be looking to game the plan; once it's released, look for some sharp moves in individual sectors.

Current expectations are for the tax reform curtain to rise on Wednesday.

Sector watch: Technology

The Technology Select Sector SPDR fund, an ETF that tracks technology stocks, is up more than 21 percent in 2017 but is about even for September as market leader Apple has fallen 8 percent.

One interesting factoid: Funds overall that invest in technology pulled in $1 billion last week, the second-most since Bank of America Merrill Lynch started tracking flows 10 years ago. The biggest week was in late-January, which was just as tech was picking up a pretty big head of steam.

So this could be one of two things: The beginning of another leg up for the sector, or perhaps the sign of a top coinciding with huge investor enthusiasm.

Boca Raton, Florida.
Walter Bibikow | Getty Images
Boca Raton, Florida.

Eyes on the economy

The week will bring a smattering of economic news from a data standpoint.

Of primary interest will be some housing reports: The closely watched Case-Shiller index of home prices hits Tuesday, the same day we'll also get a report on new home sales and consumer confidence.

Wednesday brings durable goods orders as well as pending home sales, while Thursday will see the second look at second-quarter GDP. The first reading showed growth of 3 percent, so the figure likely will be the most closely watched of the week.

In addition to data, Tuesday will feature a speech from Fed Chair Janet Yellen. The Fed last week decided not to hike its benchmark interest rate but did begin the process to unravel the monetary stimulus it has provided since the financial crisis.

Yellen's speech is expected to include some details on policy, so investors should be watching closely.

The last word

As noted earlier, we'll be getting a consumer confidence reading this week, with he Conference Board's gauge due out on Tuesday. The more closely watched measure, though, is the one put out by the University of Michigan. In the most recent measure, the level of confidence is at 65 percent.

While that all seems well and good, famously contrarian economist David Rosenberg at Gluskin Sheff says there's more than meets the eye for what amounts to a near-euphoric reading. Investors take note:

"What a classic contrary indicator it truly is! It reveals just how much good news is priced in — even when the macro news isn't so good. Look at this past month — full time jobs: down. Industrial production: down. Real wages: down. Retail sales: down. In fact, over the past three months, 46 percent of the incoming data have come in below expectations and barely more than 40 percent have managed to top consensus views.

"OK, enough of that. Here's what you need to know. In the past, when the U of M equity reading was north of 60%, the S&P 500 was basically flat three and six months out and down nearly 3% a year later. But when the metric is 40% or lower, when there is nothing but bad news being discounted, the stock market was up over 5% in a three-month span, up 16% in six months' time and more than 30% a year out."

Morale of the story: Optimism can be your enemy as an investor.