World Week Ahead: Trump to address Congress

Monday 27th February 2017

Investors will eye two key speeches this week, starting with US President Donald Trump’s address before Congress on Tuesday and a talk by Federal Reserve Chair Janet Yellen on Friday.

Meanwhile, billionaire Warren Buffett offered optimism about the US corporate outlook in his annual letter to shareholders, published over the weekend.

“American business – and consequently a basket of stocks – is virtually certain to be worth far more in the years ahead,” Buffett noted. “Innovation, productivity gains, entrepreneurial spirit and an abundance of capital will see to that.”

“Ever-present naysayers may prosper by marketing their gloomy forecasts,” according to Buffett. “But heaven help them if they act on the nonsense they peddle.”

Buffett also bolstered his argument that investors opt for low-cost index funds instead of paying investment fees to money managers as many fail to deliver on their promise to outperform the market.

“When trillions of dollars are managed by Wall Streeters charging high fees, it will usually be the managers who reap outsized profits, not the clients,” Buffett said. “Both large and small investors should stick with low-cost index funds.”

“The search by the elite for superior investment advice has caused it, in aggregate, to waste more than US$100 billion over the past decade,” according to Buffett.

Wall Street has rallied on Trump’s general promise of tax reforms. Last Friday, the Dow Jones Industrial Average touched a record high for the 11th straight session, the longest streak in 30 years.

“Markets are pricing in the Trump agenda and they’re pricing in a lot of high expectations,’’ Stephen Wood, chief market strategist for North America at Russell Investments in New York, told Bloomberg. “The likelihood that there are going to be some legislative and political bumps on the road is certainly very high. A rally predicated on political policy can expect some volatility within it.’’

Last week, shortened to four trading days by the Presidents Day holiday on Monday, the Standard & Poor’s 500 Index gained 0.7 percent.

"If [Trump] comes out [this] week and there are little or no details other than that, ‘it is going to be great’, that is going to be a time where we could have the first sort of crack in the armour," JJ Kinahan, chief market strategist at TD Ameritrade in Chicago, told Reuters.

Others disagree.

"This whole rally in the stock market is based on the premise that we have moved to a pro-business administration in Washington, DC from an anti-business administration," Bruce Bittles, chief investment strategist at Robert W Baird & Co in Sarasota, Florida, told Reuters. "The details, I think, are just noise."

Before Yellen takes the stage in Chicago on Friday, other Fed officials might offer fresh clues about the likelihood of an interest rate increase at the central bank’s March meeting.

Robert Kaplan is scheduled to speak today, followed by Esther George, John Williams and James Bullard on Tuesday, Loretta Mester on Thursday, as well as Stanley Fischer, Charles Evans and Jeffrey Lacker on Friday.

This week also offers a slew of US economic data, including durable goods orders, pending home sales index, Dallas Fed manufacturing survey, due today; GDP, international trade in goods, S&P Corelogic Case-Shiller home price index, Chicago PMI, consumer confidence, and the Richmond Fed manufacturing index, due Tuesday; personal income and outlays, the PMI and ISM manufacturing indices, constructing spending, and the Fed's Beige Book, due Wednesday; weekly jobless claims, due Thursday; and the PMI services index and ISM non-manufacturing index, due Friday.

In Europe, the Stoxx 600 Index slid 0.8 percent on Friday.

BusinessDesk.co.nz

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