Stocks escaped last week with a near-miraculous turnaround after a mid-week selloff threatened to put a major crimp in the market.
The big market-shaker was politics and events happening in Washington, D.C.
While it's good news that the market made it through with just mild losses, the bad news is that the focus again is likely to be in the capital. Curious investors should be watching closely.
The Trump trip
President Donald Trump took off over the weekend for a swing around the Middle East that will take him to Saudi Arabia, Israel and elsewhere, then for a stop at the Vatican.
Trump kicked off the trip on Saturday with the announcement of a $350 billion arms deal with Saudi Arabia, which the White House declared a "a significant expansion of…[the] security relationship" between the two countries. On Sunday, the U.S. Treasury announced an alliance with Saudi Arabia and several other Persian Gulf countries — Kuwait, Qatar, Bahrain, Oman and the United Arab Emirates — to try to stem the flow of money that is financing terrorism.
Next up is a two-day visit to Israel, which begins on Monday.
How important is this trip? With the political homeland ablaze, Trump needs some global cred to keep his presidency from sliding too far off the rails and Wall Street from losing confidence . Investors got back on the Trump train after the Wednesday market mess, but he'll only get so many passes.
James Phillips, a senior fellow at the Heritage Foundation think tank, said Trump's assignment is "to reset relations with key Middle Eastern allies and restore confidence in American leadership."
No sweat, right? The challenge awaits.
The budget battles
While he's away on international business, key members of Trump's team will be staying home to try to push through his budget. The drop date for now is expected to be Tuesday.
According to reports circulating last week, the budget calls for major cuts, primarily to social programs, along with increases in defense spending and a $1 trillion infrastructure spending program.
Why the market cares: Investors are looking for any rope to grab when it comes to economic hopes. So far the Trump agenda has gotten bogged down on political clashes and a futile effort to far to repeal Obamacare.
Don't expect a budget lovefest when the document is released.
" If ever a budget was dead on arrival, it will be (this) week's proposal from the White House," said Greg Valliere, chief global strategist at Horizon Investments.
On top of the administration's other fiscal issues, the Congressional Budget Office early in the week will release its "score" of the Republican health-care plan.
The cost estimates for the American Health Care Act are likely to cause plenty of shrieking under the Capitol dome and could doom any reform efforts.
The Obamcare repeal and replace has been a major market headache. If the CBO scoring reflects a boondoggle, health care stocks are likely to take a hit.
Central bank scorecard
There's Fed news this week as well, in the form of the minutes that will be released from the policy-making Federal Open Market Committee meeting earlier this month.
While that doesn't sound like a lot of fun, this release could be interesting. Fed officials have been discussing the process for unwinding the $4.5 trillion portfolio of bonds the Fed holds — its "balance sheet" — and the minutes could feature some interesting discussion on the topic.
The meeting summary from March did move markets after investors learned that Fed officials figure that balance sheet action before the end of the year is likely.
There also are a bunch of Fed speakers during the week, including voters Lael Brainard, Patrick Harker, Charles Evans, Robert Kaplan and Neel Kashkari.
There aren't a lot of economic reports to watch except a Friday revision to the first-quarter GDP estimate. Economists figure there will be a slight upgrade, from the most recent report of 0.7 percent to 0.8 percent.
The last word
A final thought on the Trump tour this week from Brad McMillan, chief investment officer at Commonwealth Financial Network:
With expectations so low, an absence of problems will probably count as a win, and could push markets higher. Some kind of deal, or positive statement could help even more. Conversely, with the recent news of the special counsel, much of the Trump risk has already been priced into markets, so the downside potential is probably limited. Overall, if the President can get through the trip without major problems, and even more if he can log some wins, that will probably push the market higher.
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