Domestic equity markets are beginning to get boring which is worrisome. The S&P 500 and the Nasdaq Composite both advanced meaningfully yet again last week; the Dow was down slightly. The price appreciation of the S&P 500 is now above 10% for the year – the Nasdaq Composite is approaching a 20% increase. The yield on the benchmark 10-year Treasury bond fell for the second week in a row and continues to trade at the low end of its recent range.
About 20% of S&P 500 companies have reported Q2 earnings and while mixed the reports in aggregate have been good. Per FactSet 74% of companies have beat earrings estimates and 77% have beaten revenue estimates. These numbers are above average based on history. Among widely held stocks at CTC reporting strong results were Capital One, BlackRock, Bank of America, UnitedHealth Group, Morgan Stanley, and Union Pacific. General Electric and IBM reports were disappointing. Next week quarterly earnings reporting intensifies and is outlined below.
The Federal Reserve meets next week and the consensus is they will not boost the Fed Funds rate another .25%. While the consensus has also been that there will be one additional increase in December of this year the probability of such an increase has dropped to under 40%. The interest rate environment continues to be a major conundrum for capital markets domestically. While the Fed has started to tighten and is scheduled to begin reducing its balance sheet shortly, targeted inflation metrics continue to be lackluster. Kopin Tan in this week’s Barron’s (page 9) wrote a very good article that listed many factors currently working against a pick up in inflation. They include: poor year over year consumer price index readings; poor core inflation readings; poor personal consumption expenditures; subpar wage growth given full employment; high global debt levels encouraging saving over consumption; relatively poor demographic trends in major economies; and, technological innovation and disruption in the form of robots, automation, and artificial intelligence.
Some are beginning to question whether the Fed is getting ahead of itself. Currently, slow economic growth domestically and low inflation argues for a continued low rate environment.
Among economic releases next week, the S&P/Case-Shiller home price index for May is released Tuesday. New home sales for June are reported on Wednesday. Preliminary Q2 GDP is reported Friday – the estimate is 2.1% growth.
The Federal Reserve Open Market Committee meets Tuesday and Wednesday. No change in the Fed Funds rate is anticipated.
Earnings reports are plentiful as noted below:
Monday – Alphabet (aka Google), Haliburton, and Hasbro
Tuesday – AT&T, Caterpillar, HCA Healthcare, Interpublic Group, Kimberly Clark, and United Technologies
Wednesday – Chubb, Coca-Cola, Corning, Discover Financial Services, Facebook, Hershey, and U.S. Steel
Thursday – ADP, Bristol-Myers-Squibb, Equifax, UPS, and Valero Energy
Friday – Exxon, Santander Consumer Holdings, and Unum Group
NASDAQ Composite up 1.19% for the week; YTD index return is 18.66%
Dow Jones Industrial Average down .27% for the week; YTD index return is 9.20%
Benchmark 10-year Treasury bond yield stands at 2.23% down 10 basis points for the week.
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.