Trump did not manage to take the first step towards reforms

Last week the US dollar continued falling. Stock prices also showed negative dynamics. However, no significant economic data were released from Monday to Thursday. The main negative factor for the US assets became investors’ doubts that the new US President Donald Trump would manage to quickly embark on economic reforms stimulating the US industrial production. Meanwhile, such optimistic expectations pushed the S&P 500 stock index up by 11% since November 8, 2016, when Trump won the elections. An additional factor which contributed to the start of a downward correction in the US stock markets was the increase in the price to earnings ratio (P/E) of the S&P 500 to 18. This is markedly higher than its average level of 14 in the last 10 years. Theoretically, too high P/E may mean that stocks are overvalued.

The decrease of the dollar and the stock indices started on Monday already and was triggered by the decision of the G20 finance ministers to abandon the free trade principles according to the weekend meeting results. On Tuesday, the record weekly slump of the dollar index and the US stocks was observed. Investors started doubting that Donald Trump would manage to get an approval for his bill on the cancellation of the Obamacare healthcare reform in the US Congress. The voting on this issue was scheduled on Friday, March 25. On Wednesday and Thursday, the stock and currency markets were moving sideways in anticipation of this event. As a result, investors’ concerns were not in vain and the republicans did not manage to abolish the Obamacare reform. This means that the practical implementation of Donald Trump’s other plans remains a major question. On Friday, the data on durable goods orders for February came out. They increased more than expected. This compensated for the negativity from the failure of Trump’s initiative and prevented the US markets from the collapse on Friday.

This week, almost every day the Fed regional presidents will speak in the US, and, the Fed Chair Janet Yellen is expected to speak on Tuesday. More significant US statistics will come out on Thursday- the GDP for Q4 and on Friday- personal income and expenses, as well as the Michigan University consumer confidence index. We believe that their preliminary forecasts are neutral. Probably, the comments of the Fed presidents will have the main impact on the market dynamics.