With the turmoil in Washington taking over headlines, one portfolio manager has a message for investors amid the chaos.
“There’s noise in markets and noise creates opportunities,” J.P. Morgan Private Bank’s Jack Caffrey told CNBC’s “Futures Now” on Tuesday. “That’s what investors and traders have to always dial back and forth between — what’s news, what’s noise.”
The firing of Secretary of State Rex Tillerson coupled with the possibility of more severe tariffs on China from the Trump administration sent benchmark indexes sharply lower on Tuesday.
A wave of policy change from D.C. has set markets on edge in recent weeks. Those changes include the imposition of steel and aluminum tariffs, new Federal Reserve leadership in Jerome Powell and the resignation of top economic adviser Gary Cohn from the Trump administration.
“Whether it’s policy, whether it’s the personnel behind the policy or whether it’s even just the outlook, that winds up being incorporated into valuations in the shorter term,” said Caffrey.
As political uncertainty threatens to disrupt the market rally, Caffrey says investors should focus on the fundamentals as the real market driver. The upcoming earnings season should provide the next catalyst to stock growth, he says.
“Ultimately this is an earnings story. It’s really been the driver of growth really for the last nine years that we’ve had this bull market,” he said.
A positive fourth-quarter reporting season shored up investor confidence in the upcoming company earnings. More than two-thirds of S&P 500 reported positive earnings surprises for the fourth quarter and 77 percent beat sales estimates. Overall earnings rose by 14.8 percent, the best increase since the third quarter of 2011.
A rise in earnings should continue in the next few years, according to estimates compiled by FactSet. Analysts estimate earnings growth of 18 percent for 2018, and 10 percent for 2019 and 2020. Dividends are also expected to increase.
The first-quarter season will begin in early April when the major banks report on their performance over the three months ending March. Citigroup, JPMorgan and Wells Fargo are set to report on April 13.