Here’s a rundown of this week’s tough market and what lies ahead

The market ended the week lower as investors tried to “price” (find a suitable valuation when rates were higher) with a potential of as much as 4 Federal Reserve interest rates increase at the end of the year.

Last week, we discussed what this means for investors who use the discounted cash flow model – arguably the most diligent way to determine a company’s intrinsic value – So, this week, let’s take a look at the valuation multiple, which is also used to determine the “terminal” of value in the discounted cash flow (DCF) model.

In general, investors who look more at the medium term (6 to 18 months) will look at a company’s price level against an earnings multiple, a multiple that is set against a company’s short-term earnings. Eg, Apple (AAPL) is expected to earn $5.76 per share this financial year — so at $172, the stock trades at just under 30x earnings.

However, similar to the revaluation of the discount rate in the DCF model when the exchange rate rises, the investor must also reevaluate the valuation multiple. That’s exactly what we’ve seen happening this week, especially in the high priced names and especially in the names that don’t even have earnings and therefore trade based on multiples of sales. row.

This is what you hear when investors refer to “multiples”, when interest rates rise (or are expected to rise), investors evaluate a company using multiples. lower pricing. This is also very important to understand because when a revaluation occurs, we often cannot look at recent highs especially in high value clients, as the environment has changed and the market has changed. may simply not want to see multiples applied at a lower rate than the exchange rate environment. It’s also why value (many names lower) tends to benefit when rates rise. Value stocks often already have low multiples, making shrinking risk less of an issue.

Finally, one more term you will often hear in this market is GARP or growth at a fair price. This is the term used for names that exhibit a nice mix of growth and value and can therefore be of better value when sales reach a high level of clientele, while still providing provide basic business growth capabilities.

With that in mind, though we certainly like GARP-style names and indeed big tech names like Microsoft (MSFT), Google-parent Alphabet (GOOGL) and Facebook-parent Meta . Platform (FB) are said to all fall into this category with their price-to-earnings multiples between 20 and 30 combined with a 20% high-to-low youth expected growth rate, they I repeat again that above all, we want stocks of companies that say “make everything and do everything” because in this market earnings and cash flow are the most attractive attributes of any company, not sales growth as is the case in 2020 and early 2021 when the Fed is regulating as much as it can.

Here’s a quick look at some of the broader market measures we’d like to keep an eye on: The US Dollar Index eases slightly just above 95. Gold is flat for the week, trading at $1,800. WTI crude oil prices rose to the low 80s USD/barrel. The yield on the 10-year Treasury note is held at around 1.76%.

In the portfolio we received income from Wells Fargo (WFC) on Friday before the opening bell. In addition to earnings, we received some important macroeconomic updates this week.

Wednesday

• Consumer price index for December (overall monthly CPI: +0.5% vs +0.4% estimate; Core CPI year-on-year: +5.5% vs. 5.4% estimate)

Thursday

• Weekly Initial unemployment claims: Estimated 230,000 versus 200,000; four-week moving average for claims: 210,750 (+6,250 from last week)
• Producer Price Index for December (overall PPI month-over-month: +0.2% vs. estimate +0.4%; core PPI year-over-year: +6.9 % vs. estimate 6.9%)

Friday

• Retail sales for December (overall month-over-month sales: -1.9% vs. estimates -0.1%; last month’s non-auto & gas retail sales: -2.5% vs. estimates – 0.2%)
• Industrial production and capacity utilization for December (monthly output: -0.1% vs. +0.2% estimated; capacity: 76.5% M/M estimated 77.0%

Fourth-quarter earnings will rise next week. In the portfolio we will hear from Morgan Stanley (MS) on the Wednesday before the opening bell, and Union Pacific (UNP) on Thursday before the opening bell. As a reminder, we will provide our full analysis of every income statement for the companies included in the portfolio. Here are some other reports we’ll be looking at. The stock market is closed on Monday in observance of Martin Luther King Jr. Day.

Tuesday

• Open: Goldman Sachs (GS), Truist (TFC), PNC (PNC), Charles Schwab (SCHW), BNY Mellon (BK), Signature Bank (SBNY), Old National Bancorp (ONB), Silvergate Capital (SI)
• Closed: JB Hunt (JBHT), Interactive Brokers (IBKR), Pinnacle Finl (PNFP), Hancock Whitney (HWC), Fulton Fincl (FULT)

Wednesday

• Open: United Health (UNH), Bank of America (BAC), Proctor & Gamble (PG), US Bancorp (USB), ASML (ASML), State Street (STT), Citizens Financial Group (CFG), Fastenal (FAST) , Prologue (PLD), Comerica (CMA)
• Close: United Airlines (UAL), Kinder Morgan (KMI), Alcoa (AA), Discover Financial (DFS), HB Fuller (FUL), Wintrust Fin (WTFC)

Thursday

• Open: American Airlines (AAL), Travelers (TRV), Baker Hughes (BKR), Fifth Third (FITB), KeyCorp (KEY), Northern Turst (NTRS), Regions Fincl (RF), M&T Bank (MTB), First Horizon (FHN)
• Close: Netflix (NFLX), PPG Industries (PPG), CSX (CSX), Visual Surgery (ISRG), SVB Financial Group (SIVB), OZK Bank (OZK)

Friday

• Open: Schlumberger (SLB), Ally Financial (ALLY), Huntington Banc (HBAN), HIS Markit (INFO), First Hawaii (FHB)

On the macroeconomic front, we will keep an eye on the geopolitical sector as well as the following releases (all time ET).

Tuesday

• 8:30am Empire State Index
• 10 a.m. NAHB housing market index

Wednesday

• 8:30 a.m. Housing starts
• 8:30 a.m. Building permits

Thursday

• 8:30 a.m. Weekly Unemployment Claims
• 8:30 a.m. Fed index in Philadelphia
• 10 a.m. Sell your current home

Friday

• 10 a.m. Top Indices

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