• Equities up on the week; bonds yields drop slightly
• The Fed hikes short term rates
• Tax reform legislation close to being enacted
• A look back at Street projections for 2017

Domestic equity markets continued their climb higher this week with the S&P 500, NASDAQ, and Dow up .92%, 1.44%, and 1.33% respectively. Returns for the full year for these major indices are now anticipated to be between 20%-30%. The yield on the 10-year Treasury bond was once again close to flat closing the week at 2.35%. Both the increasing probability of tax reform being enacted prior to year-end, and the Fed’s mid-week meeting and press conference were positives for the equity markets this week.

As anticipated the Fed raised short term rates by 25 basis points. They have also signaled 3 more hikes in 2018 though the market consensus is currently for two hikes. Regarding tax reform and all the impact prognostications, the bottom line from a fundamental perspective is that it will add $7-$9 per share to S&P 500 profits next year. Current estimates for S&P 500 per share earnings are running around $145 so the impact of tax reform is meaningful.

We are finishing up our outlook for 2018 and want to share what the consensus outlook was for the capital market going into 2017 to provide a feel for how accurate the Street was in looking forward. Barron’s interviewed 10 strategists from renown Wall Street institutions late last year. Their average forecast was for the S&P 500 to increase this year by 6.34%. As noted here the S&P 500 index is up almost 20% with less than 10 trading sessions left. Earnings per share for the S&P 500 were projected to come in at around $127 per share. It currently looks as if earnings will total about $134 for the year up from $118 per share in 2016. GDP growth for this year was forecasted to come in at approximately 2.4% up from 2.10% in 2016. It looks as if GDP will be in the 2.3% to 2.4% range for this year. Finally, the yield on the 10-year Treasury was projected to close out the year at 2.69% and it is currently trading with a yield of 2.35%. In retrospect, the consensus significantly underestimated the strong corporate earnings and market move in 2017. GDP estimates were dead on, and once again the projected upward move in interest rates never materialized. In fact, at a 2.35% yield on the 10-year Treasury we are below the yield (2.45%) that prevailed at the beginning of the year. As noted here previously the Street has been consistently incorrect on interest rates since the subprime crisis.

Next week on the economic calendar: November housing starts released Tuesday; existing home sales for November reported Wednesday; the final estimate for Q3 GDP is released Thursday; Friday durable goods order for November are reported.

Next week earnings reports noted below:

Tuesday – Darden Restaurants, FedEx, Red Hat, and Micron Technology

Wednesday – General Mills and Bed Bath & Beyond

Thursday – Nike, Conagra, and CarMax

Indices for the week and YTD are as follows:

S & P 500 up .92% for the week; YTD index return is 19.52%

NASDAQ Composite up 1.41% for the week; YTD index return is 28.86%

Dow Jones Industrial Average up 1.33% for the week; YTD index return is 24.74%

Benchmark 10-year Treasury bond yield stands at 2.35% - down 3 basis points

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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.