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This week: Earnings, Fed, Oil And Trumponomics

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We have about 190 companies in the S&P 500 reporting earnings this week. Oil producing countries met in Russia today. We have Fed on Wednesday. And the White House comes into the week, ramping up expectations that something will be advanced on the health care front, and they’re turning the narrative to tax reform.

As we discussed on Friday, on the corporate earnings front, the numbers should be good. The expectations are for double-digit earnings growth, which sounds great. But, again, we have to remember what we're comparing it against. The second quarter of this year is compared against the second quarter of last year, when the economy was melting from the oil price crash and the deflationary pressures that came with it. But working from a low base bodes well for a continued climb for stocks.

The Fed should be a snoozer this week, with no press conference. As for the interest rate market, the OPEC meeting will probably have a greater impact than the Fed by the end of the week. Low oil prices last year blew up the Fed's plan for a series of rate hikes last year. The return of mid-$40s oil this year has been putting downward pressure on inflation again, and has put the Fed in another awkward position, trying to explain why they like rates higher, and see inflation higher, while it's moving the opposite direction. With that said, the OPEC cuts made last year have yet to move oil prices out of this range. Today OPEC and non-OPEC members (led by Russia) appeared to be on the same page, keeping the production cuts going through early 2018. And they think demand is going to pop in the second half: "Oil demand is expected to increase significantly in the second half of 2017 compared to the first half of 2017, with the growth reaching a level of 2 mb/d, which should sustain the inventory draws."

Oil was up 1.4% on the day with that news. If oil has indeed bottomed on this recent softness and moves back to $50, the Fed should get some validation on the inflation front, and it should keep market interest rates climbing higher from here (currently 2.25% on the 10-year note).

All of this, but progress on the policy front continues to be the catalyst needed to ultimately end the malaise of slow growth and weak price pressures. On that note, we enter another week without a win on the pillars of Trumponomics (health care reform, tax reform, deregulation, infrastructure, repatriation). We’ll see if they can stick to the economy this week and avoid the getting pulled into the media narratives.

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