• Q3 earnings meeting expectations
• To date earnings being driven primarily by cost reductions
• Equity markets advance; bond yields back up
• Earnings should again dominate news flow next week

Last week saw plenty of earnings releases by S&P 500 companies which for the most part were positive. The big disappointment was General Electric’s earnings miss. The stock was off for the week and the new CEO alluded to a potential dividend cut as part of a company-wide restructuring.  In aggregate, 17% of the S&P 500 have reported earnings and the number of companies beating consensus earnings estimates is running in the mid 70% range which is slightly above the historic norm. The earnings beats appear to be driven more by cost reductions as top line revenue growth is coming in mediocre at best (two good examples are top line growth at the banks and Procter & Gamble’s results). That said, the vast majority of firms have yet to report.

For the week all three broad domestic equity indices advanced once again with the Dow Jones leading the way with an increase of 2%. The S&P 500 is up over 20% since the presidential election nearly a year ago. We would argue the sanguine markets have been propelled by solid and improving market fundamentals. The accelerating prospect of tax reform did bolster markets last week. The yield on the 10-year Treasury bond rose by 10 basis points last week and continues to trade within a fairly tight bound. While the bias is upward for rates it is difficult to see the 10-year Treasury yield above 2.75% before year end. The capital markets are currently assigning a probability above 80% to another discount rate hike by the Federal Reserve in December.

As we move towards year end it is worthwhile considering just how good the year has been to investors thus far. Bond markets have held in as well as could be expected given increasing monetary tightening; equity markets have grinded higher with very muted volatility, and globally the economic picture is improving in aggregate. It is never too early to consider tax loss selling in portfolios and to begin positioning client accounts for 2018.

On the economic front domestically, the initial GDP reading for Q3 is released Friday with consensus expectations in the high 2% range. As important, the European Central Bank meets to discuss monetary stimulus reduction on Thursday.

Next week earnings include:

Monday –  Halliburton, Hasbro, Kimberly-Clark, and Seagate Technology

Tuesday – Corning, Eli Lilly, General Motors, and United Technologies

Wednesday – Boeing and Visa

Thursday – Bristol-Meyers Squibb, CME Group, and Hershey

Friday – Goodyear and Tenneco

Indices for the week and YTD are as follows:

S & P 500 up .86% for the week; YTD index return is 15.02%

NASDAQ Composite up .35% for the week; YTD index return is 23.15%

Dow Jones Industrial Average up 2.00% for the week; YTD index return is 18.04%

Benchmark 10-year Treasury bond yield stands at 2.38% - advancing 10 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.