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Market Preview Week of 1/22/18 - Investor Sentiment 

by Chris McGee, CFA CAIA

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  • Q4 earnings season gets into full swing
  • Domestic equity rally continues
  • Domestic bond yields continue to rise
  • Government shutdown a non-event
  • Defensive sectors continue their underperformance

Q4 earnings season is underway with just over 10% of S&P 500 companies reporting results. In aggregate upside earnings surprises are running below normal (at 68%) but revenue surprises to the upside are above the norm. The impact of tax reform has negatively impacted earnings as companies are taking one-time charges to earnings to account for the affect (witness Citigroups $22 billion charge to earnings last week) of recently enacted tax reform. The Street is largely looking through the one-time charges towards the positive impact of tax reform for future corporate earnings. Repatriation of corporate cash “parked” overseas is also grabbing headlines as witnessed by Apple Inc. announcements last week.

The absolute valuation on the S&P 500 remains high as the forward P/E multiple is running between 18X – 19X earnings.


Domestic equity markets continued their ascent last week as the broad markets were up around 1%. The bigger story continues to be the current upward trend in yields. The 10-year Treasury yield closed last week at 2.66% and has risen 25 basis points since the year commenced. As stated previously, the current move higher reflects investors anticipation of higher economic growth and the reemergence of inflation domestically.


Year-to date Health Care, Technology, and Consumer Discretionary stocks continue to turn in the best performance. As widely anticipated, the more defensive, bond like, sectors in the S&P have lagged – Reits, Utilities, Telecommunications, and Consumer Staples. The rally in Financial stocks that commenced in the fourth quarter of last year continues as does the recovery in Energy issues.

As this is written the government has shut down temporarily over partisan bickering related to funding and myriad related legislative initiatives. While potentially disruptive to the capital markets short-term for all intents and purposes it is a non- event.


On the economic calendar next week, December Existing Home sales are released Wednesday; New Home sales for December are reported Thursday, and an initial fourth quarter GDP number is reported Friday. The World Economic Forum commences Tuesday in Davos, Switzerland.        

Next week is loaded with earnings reports from public companies as roughly 16% of S&P 500 companies report.; among the larger companies reporting:

Monday – Haliburton, Netflix, and UBS Group

Tuesday – JNJ, P&G, Verizon and State Street

Wednesday – GE, Legg Mason, and Ford

Thursday – American Airlines, Southwest Airlines, and JetBlue Airways

Friday – Honeywell, Colgate Palmolive, and AbbVie

Indices for the week and YTD are as follows:

S & P 500 up .86% for the week; YTD index return is 5.11%

NASDAQ Composite up 1.04% for the week; YTD index return is 6.27%

Dow Jones Industrial Average up 1.04% for the week; YTD index return is 5.47%

Benchmark 10-year Treasury bond yield stands at 2.66% - rising 11 basis points


 J. Chris McGee, CFA, CAIA, Chief Investment Officer holds an MBA in finance and marketing from the J. L. Kellogg Graduate School of Management at Northwestern University and a BS in commerce from the University of Virginia. He is a member of the CFA Institute, CFA Tampa Bay and CAIA Association. He also served on the candidate curriculum committee of the CFA Institute and served as a grader for the CFA Examination for the CFA Institute in Charlottesville, Virginia. He has served on the board of directors of Selah Freedom, Sarasota, since 2014.

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.


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.

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