The French people narrowed their presidential race to two candidates last Sunday--Emmanuel Macron and Marine Le Pen--with the results fueling a buying frenzy around the world on Monday. According to the most recent polls, Mr. Macron, who is a proponent of tighter EU integration, has a comfortable advantage over Ms. Le Pen, who would like to conduct a French referendum on eurozone membership, leading investors to believe the EU has dodged the latest populist bullet. The run-off will be conducted on Sunday, May 7.
Buyers took center stage again on Tuesday in an encore performance that left the S&P 500 higher by 1.7% after the first two sessions of the week. The positive sentiment surrounding the French vote lingered, but earnings were the focal point with Dow components Caterpillar (CAT), McDonald's (MCD), and DuPont (DD) feeding the bulls with better than expected top and bottom lines.
However, the stock market hit a speed bump on Wednesday amid the unveiling of President Trump's tax outline. The general framework of the plan was encouraging to investors, but specific details, like how it will be paid for, were in short supply. Without any offsetting sources of revenue, the tax cuts will add to the budget deficit, which will be a difficult pill for some conservative lawmakers to swallow.
Range-bound action continued throughout the remainder of the week as investors responded to upbeat earnings reports with caution, hesitant to extend the stock market's already solid 2017 gain amid disappointing first quarter GDP growth (+0.7%; Briefing.com consensus 1.1%). In addition, continued geopolitical tension related to North Korea weighed on investor sentiment.
In the end, the stock market's early-week rally more than made up for the second-half slump, leaving the S&P 500 with a weekly gain of 1.5%. The upbeat sentiment also led to an increase in rate-hike expectations. The fed funds futures market points to the June FOMC meeting as the most likely time for the next rate-hike announcement with an implied probability of 66.6%, up from last week's 48.5%.
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