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Investor Sentiment - Equities Continue Their Recovery

by Caldwell Trust

Investor Sentiment Weekly Market Preview 02-26-18

  • Equities continue their recovery

  • S&P 500 companies optimistic on 2018 earnings

  • 10-year Treasury yield flat for the week

  • Bond market dominates capital market action

Domestic equities continued their recovery from the late January correction with the S&P 500, NASDAQ, and Dow turning positive for the week on Friday. The NASDAQ is up over 6% once again for the year; both the S&P 500 and the Dow are up 2%+.

90% of S&P 500 companies have reported and earnings are running abnormally higher than consensus estimates. More importantly, company guidance on earnings for 2018 is very optimistic. Per this week’s Barron’s (p. 15) – “between Dec. 31 and Feb. 15, 127 companies in the S$P 500 issued higher-than-expected guidance for 2018, according to FactSet. That compares with an average of 49 upbeat forecasts over the same period in the past 10 years.

The yield on the 10-year Treasury closed essentially flat for the week but was somewhat volatile as rates dropped at week’s end. The 10-year Treasury yield spent much of the week above 2.9%. It appears for the short term that the specter of inflation domestically, and normalization of global interest rate will continue to dominate both fixed income and equity prices domestically. In other words, currently it is all about bonds repricing – not stocks. If inflation and global rate normalization is ultimately confirmed bond returns for this year may well be negative, and allocation to cash equivalents may prove less distasteful than the last few years.


The economic calendar is loaded next week with releases and appearances by Fed members. Jerome Powell -Fed Chair- presents before the House Financial Services committee Tuesday. The second estimate of 2017 GDP is reported Wednesday. New Home sales are released Monday by the Census Bureau. Consumer Confidence is reported Tuesday. Personal Income for January and the February ISM Manufacturing composite are both released on Thursday.          


Next week continues a heavy reporting calendar for corporate earnings – among the larger companies reporting:

Monday – Palo Alto Networks and Scripps Network Interactive

Tuesday – American Tower, Macy’s, and Toll Brothers

Wednesday – Salesforce.com and TJX

Thursday – Liberty Media, Anheuser-Busch InBev, and VMware

Given the Q4 earnings season is winding down and the preponderance of economic news flow next week, it wouldn’t be surprising to see macroeconomic news drive capital market action as opposed to corporate earnings.


Indices for the week and YTD are as follows:

S & P 500 up .55% for the week; YTD index return is +2.76%

NASDAQ Composite up 1.35% for the week; YTD index return is +6.29%

Dow Jones Industrial Average up .36% for the week; YTD index return is +2.39%

Benchmark 10-year Treasury bond yield stands at 2.87% - declining 1 basis point on the week


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