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Market Preview Week of 6/12/17 - Investor Sentiment

by Caldwell Trust

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Your Market Update:

  • High profile Technology stocks decline meaningfully Friday
  • S&P 500 slightly lower for the week
  • Monies rotate into Energy and Financial issues
  • Expect rate hike by the Federal Reserve Open Market Committee next week. 
Last week was eventful in the domestic equity markets. The NASDAQ Composite was down 1.5% as Technology stocks hold off. The companies that have provided the lion's share of the Composite's year-to-date gains were down on average over 3% each on Friday. Those issues are Facebook, Apple, Amazon, Netflix, Microsoft, and Google. The sell-off was ostensibly prompted by a few Wall Street pundits increasing negativity towards the price increases in the shares this year. CTC holds a number of these stocks in portfolios so we decided to go back and look at valuations as measured by the forward Price Earnings (P/E) ratio on the respective shares.
Here is what we found based on consensus 2018 earnings estimates for each company:
Facebook is selling at 23x next years earnings; Apple 14x, Amazon 74x, Netflix 96x, Microsoft 21x, and Google (aka Alphabet) 20x. Except for Netflix (CTC holds it in a single account) and Amazon it is difficult to argue valuations on these stocks are stretched. If you have followed Amazon over the years 74x forward earnings for the shares is relatively low. Further, Amazon earnings are anticipated to increase by over 50% next year from $8.59 per share to $13.15 per share. To put the above P/E ratios in perspective the S&P 500 is currently selling at 17.5X next years earnings.
Money rotated into other sectors of the market last week—specifically the Energy and Financial sectors both of which have underperformed the broad market thus far this year. In aggregate, most sectors were flat or declined last week except for the two mentioned above and the Materials sector. The only fundamental catalyst to drive the markets next week is monetary policy as the Fed meets. Expect a quarter percent rise in the Fed Funds rate to be announced. The capital markets have largely discounted in the anticipated rate hike. Currently, the consensus is that there will be one additional rate hike by year end. Given the inconsistencies in economic date being released we will wait and see.
The benchmark 10-year Treasury bond yield moved slightly higher last week but continues to trade at the low end of its recent trading range. The optimism discounted into the domestic equity markets as reflected in the year to date returns has not been present in the fixed income markets thus far this year.
Earnings next week are virtually non-existent and will remain that way for another month when we commence Q2 earnings season. All eyes next week will be focused on the meeting of the Federal Reserve.
Indices for the week and YTD are as follows:
S & P 500 down .30% for the week; YTD index return is 8.62%
NASDAQ Composite down 1.55% for the week; YTD index return is 15.32%
Dow Jones Industrial Average up .31% for the week; YTD index return is 7.64%
Benchmark 10-year Treasury bond yield stands at 2.20% up 4 basis points for the week.
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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