"Yesterday is not ours to recover, but tomorrow is ours to win or lose." -- Lyndon B. Johnson

Politics Before Policy

We all know all about the agenda that the new administration has laid out as a path to economic growth and ultimately some inflation. The agenda to implement drastic tax reform, take the regulatory environment down a couple of pegs, and throw large amounts of spending at infrastructure building and defense. This agenda certainly has its merits -- if we can get there.

The political risk that we've been speaking about of late is showing signs of becoming an ongoing condition. Whether or not you support building a wall, and whether or not you support a temporary halt in immigration from a few countries are not the point. The point is that these serious news items, and the lack of a functioning cabinet, are distracting. While politics remain in the forefront, the much needed reforms in policy will not go forward. Chances are that after last night's firing of rogue-acting Attorney General Sally Yates and tonight's Supreme Court nomination, the societal fracture only grows. You are going to have to defend your book, if you have not already.

Where They Went

Crude prices continue to erode and the energy sector took the brunt of the risk yesterday. In response to that risk, money flocked into The Walt Disney Company DIS and Walmart WMT yesterday. These two stocks and a mini late day short squeeze prevented the Dow Jones Industrial Average from threatening a 1% drop on the day. DIS came off of Piper Jaffrey's higher estimates and increased price target on Friday, and into Morgan Stanley's upgrade and increased price target on Monday.

WMT, in the spotlight as a Dow stock, really performed with the multi-line retail industry sub-component of the consumer discretionary sector. That group had been severely beaten last week. Gold also found its footing during yesterday's selloff. The yellow stuff is now trading up against $1200 an ounce, only this time the spot is resistance. If traders become truly concerned and the U.S. dollar behaves, you will see gold move toward $1220, which is now the point where momentum to the upside will either falter or pick up speed. Keep in mind that tonight is the end of the month.

Central Banking

The Bank of Japan left policy unchanged, maintaining its quantitative easing program and leaving interest rate targets in place. What the BOJ did was increase its forecasts for economic growth. Expectations for 2016 were increased from 1% to 1.4% and for 2017 to 1.5% from 1.3%. The yen rallied from what were the sessions lows above 113.25 to levels just below 114. This action in currency valuation is what pushed the Nikkei 225 lower by 1.7% on the day.

One item of note: the BOJ placed the U.S. economy on top of its list of foreign threats to the Japanese economy. Now, that does make some sense, not simply because of the new president's perceived protectionist policies, although they might be a contributing factor. President Trump has gone on the record indicating that he feels that the U.S. dollar is too strong. If the president pursues a weaker dollar policy (despite the Fed's implied trajectory for monetary policy) ... well, you saw what happened to a Japanese stocks today. The FOMC goes into its two-day session today, and the Bank of England will make its next policy announcement on Thursday morning.

Macro

08:30 - Employment Cost Index (Q4 2016): Expecting 0.6%, Q3 2016 0.6% q/q. This item is more important than you would think, though the market may not react due to its remarkable regularity. This data point, which measures the cost of employment to employers (including wages and benefits), has printed at a quarter-over-quarter increase of 0.6% for five consecutive quarters. That is also what most expect for today. There is, however, a slight bias to the upside in the range of expectations.

08:55 - Redbook (Weekly): Last Week: 0.3% y/y. This item is running a little light the last couple of weeks, but still is growing on a year-over-year basis. Ideally, we'd like to see improved growth this week, but the real fear would be for a negative yearly print. That could be taken very poorly among multiline retailers.

09:00 - Case-Shiller HPI (November): Expected 5.0%, October 5.1% y/y. The 20-city, non-seasonally adjusted year-over-year number is the one that the market watches. That series, after the monstrous gains made in 2013, has found support at growth of close to 5%, which is roughly what we have seen rather consistently since late 2014. November should be no exception. The one thing to keep an eye on is that 5 handle, which is likely to come under pressure. A severe miss here could impact the overall market mood.

09:45 - Chicago PMI (January): Expecting 55.1, December 54.6. The Chicago PMI is a wildly volatile series that rarely hits the tape anywhere close to expectations. That said, business conditions in the Chicago region steadily expanded throughout the second half of 2016, after a troubling first half. Almost all forecasts in this space for today were for positive movement in January.

10:00 - Consumer Confidence (January): Expecting 112.5, December 113.7. Expectations for the Conference Board's survey are that though the number may come in small, overall confidence should remain at very high levels. The similar series released by the University of Michigan showed some slowing of growth this month. Remember, Consumer based surveys can, on occasion be market movers.

Sarge's Trading Levels

These are my levels to watch today for where I think that the S&P 500, and the Russell 2000 might either pause or turn.

SPX: 2300, 2292, 2282, 2271, 1165, 2258
RUT: 1370, 1364, 1354, 1348, 1342, 1332

Tuesday's Earnings Highlights (Consensus EPS Expectations)

Before the Open: (AET) ($1.44), (ALLY - Get Report) ($0.48), (COH) ($0.75), (DHR - Get Report) ($1.03), (LLY - Get Report) ($0.98), (XOM - Get Report) ($0.71), (HOG - Get Report) ($0.31), (MA - Get Report) ($0.85), (PFE - Get Report) ($0.51), (SMG - Get Report) (-$1.25), (TMO - Get Report) ($2.38), (UAA - Get Report) ($0.25), (UPS - Get Report) ($1.69), (XRX - Get Report) ($0.25)

After the Close: (AMD - Get Report) (-$0.02), (AFL - Get Report) ($1.63), (AAPL - Get Report) ($3.23), (CB - Get Report) ($2.41), (EA - Get Report) ($2.29), (X - Get Report) (-$0.02)

At the time of publication, Stephen Guilfoyle was long DIS, although positions may change at any time.