Goncalves said Yellen would not want to be boxed in by pointing to any time frame for a hike, thought the markets expect a June move. “If the outlook is so rosy and so robust and they’re feeling they are behind the curve, they could ramp up three hikes in the second half of the year. March is not going to be an insurance hike to start the process for 2017. You just don’t do that to get the ball rolling. You do it when you have more confidence in the outlook … It’s all about confidence. Not confidence around [Trump], just confidence about what’s going to be delivered on the government side,” he said.
The Trump tax plan will also remain top of mind for markets, and there now is a wait-and-see on what he will propose — a similar plan to the House Republicans, which includes a border adjustment tax, or something else.
The controversial border-adjustment tax would be a key way to pay for the corporate tax cut, which under Speaker Paul Ryan’s plan would take the corporate rate to 20 percent from 35 percent. It basically taxes imports at a 20 percent rate but there would be no tax on exports.
“There’s just uneasiness in the senate over this. This is going to be a roller coaster ride,” said Daniel Clifton, head of policy research at Strategas. The House plan proposes a one-time repatriation of the $2 trillion in corporate cash stashed overseas, full expensing of capital equipment and a limit on deductability of interest. But without the border adjusted tax, or destination tax, the plan would not carry a tax rate as low as 20 percent. Many S&P companies already have tax rates in the low 20s percent.
Congress is lining up on both sides of the border-adjustment tax, and so are companies, with industrial companies like GE and Caterpillar in favor of it and retailers, like Target and Wal-Mart against it.
“It’s like ‘Hunger Games’ for tax lobbyists now,” said Clifton. “If you’re negatively impacted by the border tax, you’re pushing the net interest deductibility.” Limiting interest deductibility would be a negative for financial firms.
Clifton said the market may not get what it’s looking for in Trump’s tax plan. “This is: They promise something big, but it’s not meaty,” Clifton said.
What to Watch
Monday
Earnings: Teva Pharmaceutical, Noble Energy, Restaurant Brands International, Vornado Realty, First Data, HCP, Flowers Foods
Tuesday
Earnings: AIG, Credit Suisse, Dr. Pepper Snapple, T-Mobile US, Discovery Communications, TransUnion, Devon Energy, Express Scripts, Lending Club, Generac, Molson Coors Brewing
6:00 a.m. NFIB survey
8:30 a.m. PPI
8:50 a.m. Richmond Fed President Jeffrey Lacker on economy
10:00 a.m. Fed Chair Janet Yellen before Senate Banking Committee
1:00 p.m. Dallas Fed President Rob Kaplan
1:15 p.m. Atlanta Fed President Dennis Lockhart on crisis, recession, recovery
Wednesday
Earnings: PepsiCo, Applied Materials, Cisco, Kraft Heinz, Groupon, Marriott, Marathon Oil, CBS, Och-Ziff, Chemours, NetApp, Avis Budget, Kinross Gold
8:30 a.m. Retail sales
8:30 a.m. CPI
8:30 a.m. Empire State manufacturing
9:15 a.m. Industrial production
10:00 a.m. Fed Chair Yellen testifies before House Financial Services Committee on economy
10:00 a.m. Business inventories
10:00 a.m. NAHB survey
12:45 p.m. Philadelphia Fed President Patrick Harker on economy
4:00 p.m. TIC data
Thursday
Earnings: TransCanada, Wendy’s, Time Inc, Avon, Alexion, GNC, Dean Foods, Cabela’s, MGM Growth, PG&E, Con Ed, WebMD, Encana
8:30 a.m. Jobless claims
8:30 a.m. Housing starts
8:30 a.m. Building permits
8:30 a.m. Philadelphia Fed survey
Friday
Earnings: Campbell Soup, Fluor, Bloomin’ Brands, Deere, JM Smucker, Moody’s, VF Corp, Allianz
