• The Federal Reserve holds short rates steady
• Unwinding of the Fed's balance sheet commences
• Impacts of Harvey & Irma to distort economic releases
• S&P 500 Q3 earnings expected to grow 4.5%
• Equity markets mixed on the week

As was widely anticipated the Federal Reserve Open Market Committee elected to keep short term rates steady in a range of 1% - 1.25%. The Fed will commence reducing the size of its balance sheet in October by not reinvesting proceeds from maturing securities. In theory, the “run off” of Treasuries and Mortgage Backed securities could push longer maturity yields higher over time. The last couple of weeks have seen longer term interest rates move higher in anticipation of the Fed’s actions.  The Fed has emphasized it will implement its program slowly, and its intentions have been well telegraphed though are unprecedented. Rising rates implies principal loss for bondholders. We are currently conservatively postured in portfolios from an interest rate perspective. We don’t intend to make any major changes to our fixed income positioning and will monitor the impact of the Fed’s balance sheet reduction.

Regarding shorter term interest rates, the Street consensus is back above 50% that the Fed will increase rates at their December meeting.

Hurricane Harvey’s impact is already showing up in economic data as retail sales, industrial production, and sentiment measures were all negatively impacted last week. The effects of hurricane Irma should only exacerbate the negative economic impacts further over the coming weeks. It is anticipated that economic metrics rebound in Q4.

Q3 earnings season will get under way in a few weeks. Earnings growth is anticipated to be around 4.5% on a year-over-year basis. The rate has moved lower since the end of June driven primarily by downward revisions in the Energy sector. That said, downward revisions have been less than the historical norm. Revenue growth for S&P 500 companies is expected to be 5.2% for Q3. Domestically we continue to experience a strong earnings recovery subsequent to the collapse of Energy prices in 2015.

Domestic equity markets were mixed this week but essentially flat as the NASDAQ was down slightly, and the S&P 500 and Dow advanced marginally. The yield on the 10-year Treasury bond rose slightly backing up 6 basis points. In all, the yield on the 10-year Treasury is up about a quarter of a percent over the last three weeks but still below where it commenced the year. As might be expected the Financial sector has performed well over the same period and has outperformed all but the Energy sector so far in September after mediocre performance relative to the broad market since the beginning of the year.

On the economic calendar for next week:

New Home Sales for August are released Tuesday; Durable Goods Orders for August are released Wednesday; Thursday Q2 GDP is released; Friday both Personal Income and Consumer Spending for August are reported.

Earnings releases next week are sparse:

Monday – Carnival Corp.

Tuesday – Darden Restaurants, Micron Technology, and Nike

Thursday – Conagra, KB Home, and Rite Aid

Indices for the week and YTD are as follows:

S & P 500 up .08% for the week; YTD index return is 11.46%

NASDAQ Composite down .33% for the week; YTD index return is 19.44%

Dow Jones Industrial Average up .36% for the week; YTD index return is 12.92%

Benchmark 10-year Treasury bond yield stands at 2.25% - rising 5 basis points for the week

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Chris McGee heads Caldwell’s investment committee, which draws on a team of experienced in-house professionals and carefully chosen outside analysts to make decisions for client portfolios.

A Chartered Financial Analyst (CFA) and Chartered Alternative Investment Analyst(CAIA), McGee had previously been senior investment adviser and senior vice president at PNC Wealth Management in Sarasota for nearly a decade. Prior to that he was portfolio manager for five years with U.S. Trust (formerly Bank of America) in Sarasota. Before relocating here, he had served as vice president, capital management, for Wachovia Bank in Winston-Salem, North Carolina.

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About Caldwell Trust Company

Caldwell Trust Company is an independent trust company with offices in Venice and Sarasota, Florida. Established in 1993, the firm currently has nearly $1 billion dollars in assets under management for clients throughout the United States. The company offers a full range of fiduciary services to individuals including services as trustee, custodian, investment adviser, financial manager and personal representative. Additionally, Caldwell manages 401(k) and 403(b) qualified retirement plans for employers.