(Bloomberg View) -- U.S. stocks turned in another monthly gain in April, thanks in large part to the surge early last week powered by the French elections, solid corporate earnings and the anticipation of significant tax cuts. At the same time, the outperforming Nasdaq extended its winning streak to a sixth consecutive month, while the Dow Jones Industrial Average followed close behind, with five of six positive months.
Yet the mood in markets was not as ebullient as the numbers would have you believe. A growing number of commentators expressed concern about the extension of the “Trump Rally.” As such, these four events, most of which will play out over the next seven days, will help shed light on the prospects for a market phenomenon that has handsomely rewarded investors.
1. After the 100-day mark
Although the 100th day in office -- which President Donald Trump marked on April 29 -- is an arbitrary milestone, this initial period for a new administration attracts a lot of media coverage and commentary. That means it also affects behaviors -- in this case, encouraging a flurry of policy announcements and initiatives. Some were well-prepared and sequenced, others less so.
With this marker now in the rear-view mirror, investors will be hoping for greater clarity and predictability when it comes to the content and implementation of policies -- especially those that influence economic growth and corporate earnings. Chief among these is the follow-up to last week’s announcement of the broad outline of the Trump administration’s tax reform proposal, including details on the measures and the congressional strategy that would help answer important questions on the prospective race between growth and debt, and how this is placed in the context of a broader policy initiative that enhances productivity and helps unleash more fully the economy’s potential for high and inclusive expansion.
2. Soft versus hard data
After a week of continued divergence between soft (sentiment/confidence) measures and hard data, investors will pay particular attention to the release on Friday of the April jobs report. Data on employment creation, wages and labor participation will shed light on the underlying health of the consumer -- an issue that has become more important after the data issued last week showed that first-quarter gross domestic product growth reached only 0.7 percent, its lowest level in three years. The numbers will help assess how much of the disappointing reading, especially for consumption, was caused by problematic seasonality adjustments and temporary or reversible factors, and how much reflected a weakening of the growth dynamics.
3. Meeting of the Federal Reserve
The lagging hard data is to be a subject of discussion when the Federal Open Market Committee, the Fed’s policy-making panel, meets this week. Though markets are not expecting any changes in policies, they will be interested in the Fed’s signals about the economy -- specifically the extent to which the central bank feels confident seeing through soft patches in data that have included GDP, inflation and retail sales. This influences not only the Fed’s plan for further rate hikes this year but also how it guides markets on the reduction of its balance sheet, which ballooned as a result of quantitative easing-related purchases of securities.
4. French elections
The decisive second round of voting on May 7 will put an end to the suspense about who will be the next president of France. And there is a lot at stake: One candidate, Marine Le Pen of the National Front, wishes to upend the existing economic institutional system; the other, Emmanuel Macron, an independent centrist, is promising change within the system.
With the markets having priced in a high probability of a Macron win, there will also be interest in finding out how a “politician who timed his ascend to perfection” plans to “cohabitate” with the mainstream parties in the National Assembly.
The Trump Rally has already done much to bolster stocks and sentiment, both among households and corporations. In the process, both have been decoupled from the lagging and ultimately necessary improvements in economic fundamentals. To sustain further gains, potential potholes (the French elections, for example) need to be sidestepped and further momentum needs to be gained (hard data). This week will shed some light on the extent to which this happening.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Mohamed A. El-Erian is a Bloomberg View columnist. He is the chief economic adviser at Allianz SE and chairman of the President’s Global Development Council, and he was chief executive and co-chief investment officer of Pimco. His books include “The Only Game in Town: Central Banks, Instability and Avoiding the Next Collapse.”
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