The morning wrap by JPM’sAdam Crisafulli notes the ongoing theme of a “patient” market, which however is growing increasingly impatient with the lack of visibility from DC.
J.P. Morgan Early Look at the Market
It’s a pretty quiet morning so far. Asian stocks were mixed (Japan was closed for a holiday). Eurozone equities and US futures are trading off small. Nothing major occurred on the macro front – the G20 communique was a small net negative in that prior disavowals of protectionism were removed although this doesn’t appear to be altering the present market narrative dramatically. Eco data was pretty minimal (other than solid China home prices and Taiwan export order numbers).
The tone of the press remains skeptical and cautious w/the WSJ noting small-cap underperformance and how 10yr TSY yields are now ahead of the SPX dividend yield (although this phenomena has been in place for a few months at this point). The biggest event by far for equities will be the House floor vote on Ryan’s HC bill (scheduled for Thurs 3/23) – failure to advance this legislation would likely materially undermine market confidence in the GOP tax reform agenda. The fact Ryan even scheduled a vote suggests some confidence on his part in being able to secure passage although this is by no means guaranteed.
Even if Ryan manages to get his bill out of the House, passage in the Senate appears very unlikely which raises the larger issue of how much time and political capital Republicans wind up devoting to this issue at the expense of more market-friendly initiatives (namely tax reform).
Investors are staying calm but patience could quickly run thin if repeal/replace stays deadlocked into Apr.
The Bottom Line for US stocks remains the same: ~$133-135 is still being penciled in for Washington-neutral SPX 2018 EPS and on that number the PE at ~2400 (~18x) is rich but not ridiculous (although to sustain prices north of 2400 Washington will have to add at least a few dollars to the $133-135 range which is why tax reform confidence is so key to justify further gains).
Calendar for Mon 3/20 – the big events on Mon include the Eurozone fin min meeting (3/20-21), Gorsuch’s Senate confirmation hearing, the House Intelligence Committee’s public hearing focused on Russia’s involvement in the US election, Fed speakers (Harker interview on CNBC and Evans speaks in NY), and the French presidential debate.