Consumers and inflation — What you need to know in markets on Friday – Yahoo Finance

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Stocks will move into the week’s final trading day with the S&P 500 at a new record.

After the small-cap Russell 2000 hit a record on Wednesday and another on Thursday, investors will look to close out the third quarter of 2017 on a positive note with the “Trump trade” making a comeback after having been out of favor for most of the year.

On Friday, investors will also have two pieces of closely-followed economic data to keep tabs on, with the latest reports on personal income and spending, as well as the Fed’s preferred inflation measure, due out at 8:30 a.m. ET, while the University of Michigan’s reading on consumer sentiment is set for release at 10:00 a.m. ET.

Volume in markets is likely to be heavy on Friday as investors square out positions as we head into month- and quarter-end. And while it may seem sometimes like we are still living in 2016, 2017 is almost over.

The ‘Trump trade’ redux

After being declared dead in the spring, the “Trump trade” is back.

Except it may or may not be exactly about President Donald Trump and his plans for the U.S. economy.

Certainly, Wednesday’s move up reflected optimism from investors on the White House’s latest outline for tax reform. And, in turn, many of the big parts of the post-election rally took the lead — small caps, bank stocks, the U.S. dollar, all while yields turned higher.

And in commentary published on Thursday, Blackstone (BX) vice chairman Byron Wien said “The market has clearly responded favorably to the election of Donald Trump last November.”

Famed investment strategist Byron Wien.

But Wien added that, “Aside from his pro-growth agenda, [Trump] promised to bring a more business-friendly attitude to Washington. His failure to get any of his major initiatives passed through Congress has been a disappointment and one would think the market’s response to that would be negative.”

And yet as we saw this week — and have seen in the last few weeks as the “Trump trade” has really been “back on” since about Labor Day — investors remain willing and ready to give Trump the benefit of the doubt.

Now, as we wrote on Thursday, looking at the recent market action from the standpoint of it simply being that this year’s least popular trade — that is, the “Trump trade” — is unwinding a bit also presents a persuasive argument. Also take into account that, as pointed out by the team at Bespoke Investment Group, companies with lower tax burdens continue to see their shares outperform companies with higher tax burdens. In anticipation of tax reform, one would expect this to be the opposite.

But in his note, Wien also writes that, “In my conversations with institutional investors I find a surprising lack of optimism about the outlook for equities.”

This to our minds also explains why the market’s recent move, which looks sort of like an unwind of a big consensus opinion and sort of like a positive endorsement of the Trump administration, has seemed to need such a strong explanation.

Because for all of the success that equity market investors have enjoyed over the last year, there still seems to be a general displeasure with the market as a whole.

“Some would argue that only a few stocks are accounting for the rise,” Wien writes, “but the equal-weighted S&P 500 was up over 8% year-to-date as well.”

It seems then, at least in part, that the current market environment is a strong, robust bull market in the middle of a sturdy economic expansion surrounded by those looking for reasons to disbelieve their eyes.

Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland

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