As investors sought to “price-in” (find a reasonable valuation level in face of higher rates), markets finished lower for the week. This could have the potential to affect as many as four. Federal ReserveIncreases in interest rates by year-end

Last week, we discussed what this means for those investors utilizing discounted cash flow models — arguably the most diligent way to determine a company’s intrinsic value — so this week, let’s take a look at valuation multiples, which are also used to determine the “terminal value” in a discounted cash flow (DCF) model.

Investors who are looking for a more immediate to mid-term investment (6-18 months) will be more interested in a company’s earnings multiple (the multiple that is placed on the company’s near-term earnings). This is an example. Apple (AAPL) is expected to earn $5.76 per share this fiscal year — so at a price of $172, shares trade at just below 30x earnings.

Investors should also review valuation multiples. We saw this happen in high-flier names and in those that do not have earnings, so we were particularly impressed by the results.

Investors often refer to this when they mention multiple contraction. When interest rates rise (or are forecast to rise), investors assign a lower valuation multiple to companies. Understanding this is crucial because it means that we cannot always look at past highs in high fliers when doing a rate re-rating. In other words, the market might be unwilling or unable to see back to the higher multiples in a lower rate environment. Value (lower multiple names), tends to be more in demand as rates rise. The risk of recession is less for value stocks, which typically have lower multiples.

You will also hear GARP (growth at a fair price) a lot in this market. It is used to describe names with a great mix of value and growth. They may be better able to resist high-fliers and still provide exposure to the business’s growth.

We do like the names that are based on GARP, as well as mega-cap tech names such. Microsoft (MSFT), Google-parent Alphabet(GOOGL) & Facebook-parent Meta Platforms(FB) All of these stocks could be put in this group due to their high 20s-30s price to earnings multiples and low teens to low 20% anticipated growth rates. However, we reiterate once more that we prefer the shares of companies that make stuff and do it because sales growth is not what we were looking for in the market in 2020 or early 2021.

Below is a brief overview of some of our preferred market measures. The gold price was flat during the week and traded at the $1,800 mark. WTI crude oil prices increased to $80s/barrel. The 10-year Treasury yield yield held at 1.76%.

We received earnings from the portfolio. Wells Fargo(WFC), Friday morning before the official opening bell. We received key macroeconomic updates and earnings this week.

Wednesday

• Consumer price indexFor December, the overall CPI MoM is +0.5% vs a +0.4% estimate. Core CPI YoY is +5.5% (vs 5.4% estimated)

Thursday

• Weekly initial jobless claims: 230,000 vs. 200,000 estimate; 4-week moving average of claims: 210.750 (+6,250) vs. prior week
• Producer price indexDecember: Overall PPI MoM: 0.2% vs. +0.4% estimation; Core PPI YoY : 6.9% vs 6.9% estim)

Friday

• Retail sales for December (overall sales MoM: -1.9% vs -0.1% estimate; retail sales ex-Auto & Gas MoM: -2.5% vs -0.2% estimate)
• Dec. Industrial Production and Capacity Utilization

The fourth quarter earnings will pick up this week. We will be hearing from the following: Morgan Stanley(MS), Wednesday prior to the opening bell Union Pacific(UNP) Thursday prior to the opening bell. Reminder: We will present our analysis of each earnings report for all companies in the portfolio. These are other reports that we’ll be monitoring. On Monday, Martin Luther King Jr. Day is observed by the stock exchange being closed.

Tuesday

• Goldman Sachs (GS), Truist(TFC), PNC [PNC], Charles Schwab (SCHW), BNY Mellon/BK), Signature Bank/SBNY), Old National Bancorp/ONB, Silvergate Capital/SI
• JB Hunt (JBHT), Interactive Brokerss (IBKR), Pinnacle Finl, Hancock Whitneys (HWC), Fulton Fincls (FULT), are all close.

 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), Prologis (PLD), Comerica (CMA)
• Near: United Airlines (UAL), Kinder Morgan(KMI), Alcoa [AA], Discover Financial (DFS), HB Fuller, FUL, Wintrust Fin (WTFC), Close to: United Airlines

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), Intuitive Surgical (ISRG), SVB Financial Group (SIVB), Bank OZK (OZK)

Friday

• Offered: Schlumberger, Ally Financial (ALLY), Huntington Banc [HBAN], HIS Markit Information (INFO), First Hawaiian

We’ll also be watching the geopolitical scene for any future releases.

Tuesday

• 8:30 a.m. Empire State index
• 10.30 a.m. NAHB housing index

Wednesday

• 8:30 AM Housing Starts
• 8:30 a.m. Building permits

Thursday

• 8:15 a.m. Weekly jobless cases
• 8:15 a.m. Philadelphia Fed Index
• 10 a.m. Existing home sales

Friday

• 10 a.m. Leading Indicators

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Jim Cramer’s Charitable Trust has AAPL and MSFT as well GOOGL, FB, WFC.