S&P 500; US Indexes Fundamental Forecast – January 18, 2017

The three major U.S. stock indices finished lower amid concerns over President-elect Donald Trump’s economic policies. Risk aversion encouraged investors to pull money out of stocks and hedge their proceeds in gold and Japanese Yen.

In the cash market, the bench mark S&P 500 Index closed at 2267.89, down 6.75 or -0.30%. The blue chip Dow Jones Industrial Average finished at 19826.77, down 58.96 or -0.30% and the NASDAQ Composite ended at 5536.51, down 37.61 or -0.68%.

Although investors remain positive about stocks, mainly due to the strong underlying economic fundamentals, they seem to have decided to step back during this period of uncertainty over whether Trump can accomplish his goals to stimulate the economy through massive fiscal spending, tax cuts and relaxed regulations in a timely manner.

The Dow and the S&P 500 Index have been in a consolidation phase recently due to investor indecision. These investors may also be starting to worry about the downside risks in the market as they continue to question Trump’s inability to run a government.

Stocks were also under pressure on Tuesday due to concerns of a hard Brexit. However, Britain’s Prime Minister Theresa May calmed investors when she outlined her plan for the U.K.’s clean break from the European Union. Although she may have avoided a catastrophe like many had predicted, investors still remain pessimistic over the issue.

Forecast

Stocks rallied after Trump’s surprise win in November because investors believed that with a businessman running the government instead of a lawyer, laws would be passed in a timely manner, and money spent appropriately. Additionally, they also thought that taxes would be cut and regulations relaxed in order to improve business conditions. However, it now looks as if investors believe Trump has his priorities out of order.

Firstly, he criticized a proposed corporate tax plan from the House of Representatives, labeling the plan as “too complicated”. Furthermore, he hasn’t even addressed relaxing banking regulations. Instead he has spent most of his time bashing companies and aggravating countries over trade and tariffs. Republicans even made repealing Obamacare their top priority. To a growing number of investors, this likely means that Trump won’t get to the important stuff until later in the year.

It’s hard to tell right now, but it looks as if investors are probably going to give Trump the normally allowed 100 days to right the ship. In the meantime, I don’t expect much buying. Investors may decide to hold stocks in a range while Trump works out his issues.