As I write this letter, the Dow 30 Industrial Average is up 300 points today and is trading over 21,000. The last few months have seen a historic rally in equity prices. Last night President Trump addressed Congress and today the concepts of lower taxes, less regulation, stronger military and fairness in trade is being viewed for the stock market as a reason to rally. Mind you, none of these promises have occurred yet, but the equity markets anticipate these promises and look to the future and his intentions and to equity traders at this moment, the future looks brighter. I say this regardless of who you voted for. This is simply an empirical view of what is currently happening in our economic world. There will come a moment in time when Mr. Trump will be judged by his actions, and not just his words and we will see how the markets react when that time comes.
March 2017 will be one of the busiest months in a long while with multiple potential market-moving events to monitor:
March 5 – China’s National People’s Congress Meeting begins. Economic growth goals will likely be announced at this meeting. LPL Research expects official growth targets will be reduced from 2016’s 6.7 goal. Additional policy announcements will likely include commitments to reduce coal to improve air quality in Beijing and other major cities.
March 7-9 – U.K. House of Lords will debate Brexit and European council meeting. The three- day period will likely mark the end of the first stage of the U. K.’s withdrawal from the European Union (EU). On March 7, the U.K. House of Lords (similar to the U.S. Senate) will commence final debate on Brexit. It is assumed the House of Lords will pass the Brexit bill. The European Council is scheduled to meet March 9. It is possible that the U. K. will formally announce its intention to withdraw from the EU at this meeting.
March 10 – The February Employment Report Preview and the February jobs report. The initial reaction to the January 2017 nonfarm payrolls (released in early February 2017) was excitement, as it came in at 227,000 net new jobs in January, far above the consensus estimate of 180,000. The jobs data showed the economy is performing well enough to create lots of jobs, but not well enough to cause wages to rise. This is considered by many as a “just right” mix. Current expectations for the March 10 jobs report is the creation of 175,000. This would be less than last month, but LPL believes that job creation will decelerate over the year, as it did in 2016.
March 14-15 – Federal Reserve (Fed) meeting. The Fed’s policymaking arm (FOMC) holds it’s second of eight meetings this year on March 14–15. As of Monday, February 27, 2017, the market – as measured by the Fed funds futures market – is pricing in just a 40% chance of a 25 basis point (.25%) Fed rate hike. At the time of this writing, two days later, I think it safe to say that those odds have increased by looking at the market reactions we are seeing today. LPL’s view remains with the economy near full employment and inflation running at above the Fed’s 2% target the Fed will raise rates two to three times in 2017. – Mark
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. No strategy assures success or protects against loss. Economic forecasts may not develop as predicted. Some of this research material has been prepared by LPL Financial. All indices are unmanaged and may not be invested into directly. Referenced material: LPL Research Weekly Economic Commentary & LPL Research Weekly Market Commentary, both dated February 27, 2017. Approved Reference #: 1-586751.