MARKET SNAPSHOT: Investors Look To Trump Drama With Earnings Wrapping Up, Light Data Ahead

By Wallace Witkowski, MarketWatch Features Dow Jones Newswires

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The strongest earnings season in nearly six years has provided a bulwark against controversies that have emerged out of the nation's capital, but with quarterly results wrapping up, the drama out of Washington may take center stage and further raise the question as to whether President Donald Trump can effectively get any of his pro-business policies passed.

On Friday, the Dow Jones Industrial Average and the S&P 500 index both snapped a three-week streak of gains (http://www.marketwatch.com/story/us-stocks-poised-to-open-lower-with-spotlight-on-retail-sales-inflation-data-2017-05-12), while the Nasdaq Composite finished a fourth week in a row higher. In the week, markets contended with Trump's surprise firing of FBI Director James Comey (http://www.marketwatch.com/story/trump-fires-fbi-director-comey-democrats-call-for-special-prosecutor-in-russia-probe-2017-05-09), who had been spearheading an investigation into Russian interference with the 2016 election.

While investors may not be freaking out (http://www.marketwatch.com/story/why-investors-still-arent-freaking-out-over-the-comey-firing-2017-05-12) about the Comey firing and the possible repercussions, they're mindful that Republicans may distance themselves from the president out of midterm election voter concern, and that could jeopardize Trump's agenda.

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Those concerns will likely push the smattering of economic data this week to secondary importance, Robert Pavlik, chief market strategist at Boston Private Wealth, said in an interview.

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"There would have to be some extraordinarily good data next week to change the conversation," Pavlik said.

Reports due next week include the May Empire State index and May homebuilders index on Monday; April housing starts, building permits, industrial production, and capacity utilization on Tuesday; with weekly jobless claims, the May Philly Fed index, and April leading indicators on Thursday.

"People are worried that the Washington drama may start to spiral into something that detracts from the Trump agenda," Pavlik said. "The market's not reacting now, but if Trump starts losing political and voter support, that agenda might go away."

Stocks have been curiously even-keeled in the past few weeks, with the S&P 500 moving within a daily range of 0.5% or less for 13 straight sessions, according to Dow Jones data, the longest such streak since September 1995, when the index moved within that range for 14 straight sessions. Not even the Comey firing disrupted that.

"I'm amazed, with the news that came out, how calmly the market digested that," Ryan Detrick, senior market strategist at LPL Financial, said in an interview. "There's a wait-and-see mentality: Is the shoe going to drop, or is there a shoe to drop? What can snap us out of this Sea of Tranquility?"

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Part of the flatness can be attributed to strong earnings, which are directly supporting stock prices, balancing out the indirect pressures of how uncertainties and continued controversies in Washington will affect promised reforms that propelled gains for much of the year, Detrick said.

With more than 90% of the S&P 500 having reported quarterly results, the index is on track for earnings growth of 13.6% for the first quarter, the strongest increase since the third quarter of 2011, according to John Butters, senior earnings analyst at FactSet.

That growth number could get scaled back a bit, especially after earnings disappointments from traditional retailers (http://www.marketwatch.com/story/retail-stocks-rocked-as-macys-casts-pall-on-sector-2017-05-11) like Macy's Inc.(M) in the past week. Many big-box retailers like Wal-Mart Stores Inc.(WMT), Target Corp.(TGT) and Home Depot Inc.(HD) have earnings reports in the coming week.

Those retailers may be less of a concern and interesting to watch out for, Bill Stone, chief investment strategist at PNC Asset Management Group, said in an interview.

"One thing we've seen are that department stores are having difficulties because of online sales, so it'll be interesting to watch Home Depot," Stone said, reasoning that consumers are more likely to go to a physical store for their home improvement products than purchasing online. Plus, with home prices rising, people are more willing to put money into their homes, he said.

(END) Dow Jones Newswires

May 13, 2017 07:59 ET (11:59 GMT)