Equity markets were mixed last week, with the S&P 500 Index down fractionally.1 Investors grew more wary about President-elect Trump’s increasing scrutiny of specific corporate policies and a possible push forhigher tariffs. The health care sector suffered due to drug pricing concerns, while retail sectors were hurt by generally disappointing earnings results.
Read an excerpt of the complete commentary below, or the entire weekly investment commentary as a PDF.
Forward Guidance Is Key for Earnings and Equity Prices
As the fourth quarter earnings season begins, we think earnings are improving, but we expect mixed results. We believe interest rates, the U.S. dollar, oil prices and wage rates will drive results over the course of 2017. For the current reporting quarter, we expect higher oil prices will benefit energy and related sectors, and think the stronger dollar will present a headwind for larger multinationals.
Furthermore, we are closely watching forward guidance. Investors will scrutinize earnings statements for hints about what corporate management teams expect in terms of possible tax reform, regulatory changes and economic growth. These factors are likely to drive capital spending, hiring plans and a range of other corporate actions that could affect equity prices.
Overall, both consumer and business confidence appears high, and corporate earnings and economic growth should accelerate in 2017. This should produce tailwinds for stock prices, but gains are likely to be uneven and more company-specific compared to recent years.