The Fed story may well command attention. I classify it as an important story, but not an urgent one. I have some strongly-held viewpoints:
We have a very quiet week for economic reports. The housing data are quite important, but it will be a Tuesday story without legs. The White House drama will be compelling for the media. Whether investors like the idea or not, we should expect another week of news that is mostly political.
There is plenty of “upside risk.” Earnings growth is improving, even in the environment of modest growth. The recent market strength could go on for years without any policy changes. If some of the Trump agenda (probably with Democratic support) becomes law, it could mean a spike in both economic growth and profits. We already see improved business and consumer confidence.
I expect to see little change in Fed policy. The new President will wind up appointing people with traditional credentials, but perhaps with different policy viewpoints. He will not reappoint Yellen, although people forget that the Fed Chair is often appointed by Presidents of both parties.
My scorecard for earnings season will look for the following company characteristics: Confidence. I expect most to have a murky outlook, with no reason to set the future bar very high. Important trade relationships – imports or exports. Comments on these fears may create some buying opportunities. Concern about a stronger dollar. Everyone is teed up to watch for this, and we should as well.
Some sort of fund repatriation will be part of the package. All else equal, that suggests a bias to companies that might gain the most. The Atlanta Fed provides some hard data. Expect tax cuts, probably including some nods to Democrats. This will represent fiscal stimulus. Cyclicals continue to show strength, partly from the expectation noted above. (Eddy Elfenbein). The trade war is likely to be a bargaining approach. It is an error to over-react on speculation. The health care issue is far from settled. Early symbolic repeal? Yes. Real changes? Unclear.
The possible election results are not binary. There is a wide range of possible outcomes, listed below from bearish to bullish. Please note that I am not opining about who I want to win or how you should vote. I am reporting how the market will probably react under differing circumstances, with some references for you to start your own research.