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Investor Sentiment - Markets Focused on Economic Growth, Inflation, and Rates

by Caldwell Trust

investor sentiment 3/19/2018

  • Both yields and equity markets down on the week

  • Washington news flow distracting

  • Federal Open Market Committee (FOMC) most likely hikes rates

  • Markets focused on economic growth, inflation, and rates

Seesaw. The broad domestic equity markets were all down this week and while the markets have rebounded from the late January market correction it appears they are in a consolidation phase. The relentless noisy news flow out of Washington is currently distracting the markets and investors away from fundamentals which has not been the case since the election nearly a year and a half ago. Tilllerson - out, Cohn - out, Pompeo - pivots, Kudlow - in, Haspel - in. Tariffs? Trade wars? The S&P 500, NASDAQ, and Dow Jones Industrial Average were all down over 1% on the week.

Jerome Powell, the new Fed chair has his first news conference after the Tuesday/Wednesday FOMC meeting. The market consensus is that the Fed Funds rate will be hiked by a quarter %. For the year, the consensus is that three rate hikes are in store with the risk to the upside (potentially four hikes). Domestic economic growth, inflation expectations, and interest rates continue to be the underlying capital market drivers this year. As of now, earnings growth for S&P 500 companies is a lock for 2018 with growth expected in the 15+% range.


In case you missed it the yield on the 10-year Treasury bond has moderated the last couple of weeks after moving towards 3% last month. The yield dropped this week to 2.84%. The moderation in large part is due to the most recent jobs report which tempered expectations of a pickup in inflation. We note, the Street has been fairly consistently wrong on the direction of interest rates since the sub-prime crisis ten years ago. While the current market consensus thinking is that we are on the verge of a meaningful move upward in rates many smart pundits believe otherwise.


The economic calendar for next week includes existing home sales for February being reported by the National Association of Realtors on Wednesday. Also, on Wednesday, the Fed announces a decision on short term rates. On Thursday, the index of leading economic indicators is released. New home sales, and the durable-goods report for February are released by the Census Bureau on Friday.        


Next week is yet another slow week for earnings reports:

Monday - Oracle

Tuesday – FedEx

Wednesday – Tencent Holdings, General Mills, and Guess?

Thursday – Darden Restaurants, Conagra, KB Home, and Nike


Indices for the week and YTD are as follows:

S & P 500 down 1.24% for the week; YTD index return is +2.93%

NASDAQ Composite down 1.04% for the week; YTD index return is +8.38%

Dow Jones Industrial Average down 1.54% for the week; YTD index return is +.92%

Benchmark 10-year Treasury bond yield stands at 2.84% - down 5 basis points for the week.


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