Where We Stand
John Stoltzfus, chief investment strategist at Oppenheimer Asset Management, explains his top-down view of markets, the economy and asset allocation.
Economic Growth
The U.S. economy slowed significantly in the first half of 2022. With the Fed tightening monetary policy to curb inflation, the outlook for the rest of the year remains mixed.
Current View: Neutral
Equities
The pullback during the first half of 2022 has left stock market valuations at attractive levels, yet the outlook for equities remains challenged by dysfunction in supply chains and rising prices.
Current View: Positive
Fixed Income
As interest rates have risen, bonds are becoming more attractive for investors. U.S. Treasuries are likely to remain under pressure on concerns over persistent inflation and less accommodative monetary policy.
Current View: Neutral
Inflation
Inflation has risen aggressively with price pressures remaining stubbornly high due to Russia’s invasion of Ukraine, zero-Covid policy shutdowns in China and a domestic energy policy that remains an impediment to U.S. energy independence.
Current View: Negative
Employment
Job postings remain robust even as some employers begin to trim headcount as they reassess business models in a transitional economic landscape.
Current View: Neutral
Oil
Demand continues to support oil prices even as global growth begins to slow. The outlook for oil remains positive as the time gap between fossil fuel dependence and the switch to alternative energy remains stubbornly wide.
Current View: Neutral
Currencies
The dollar’s strength versus both developed and emerging market currencies reflects high levels of uncertainty in the global economy fueling safe haven flows. This brings headwinds for U.S. multinational and exporting firms.
Current View: Neutral
Monetary Policy
With inflation near its 40-year high, the Fed is moving quickly toward a neutral policy stance. Even as the Fed takes action on inflation, central bankers remain sensitive to the impact of policy shifts in an effort to avoid derailing economic growth and job gains.
Current View: Neutral
Public Policy
The trillion-dollar bipartisan infrastructure bill should boost U.S. economic growth even as fiscal policy becomes less accommodative.
Current View: Positive
International Markets
International developed and emerging markets have come under pressure as monetary policy stances have changed and as supply chain dysfunctions persist.
Current View: Neutral
Keys to Allocation
1. Core-Satellite Approach
We advocate combining individual securities and actively managed portfolios around a core of other broadly diversified and strategically allocated investments.
2. Broad Market-Cap Exposure
We favor exposure across large-, mid- and small-cap equities when making stock- and sector-specific allocations as global markets remain prone to frequent rotation and rebalancing.
3. Know What You Own
Understanding how different investments interact with each other and how they behave in certain market environments is critical for investors to help achieve their long-term investment goals.
Sector Views
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Technology
Rating: Outperform
Rationale: Makers of products vital to business and consumers are poised to navigate higher interest rates. Newer technologies to benefit from M&A as established companies seek cost-effective synergies.
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Financials
Rating: Outperform
Rationale: Prospects for higher interest rates and growing demand for insurance and investment products support sector.
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Health Care
Rating: Perform
Rationale: Longer-term fundamentals remain solid for pharma with valuations in biotech becoming more attractive for M&A.
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Consumer Discretionary
Rating: Outperform
Rationale: Leisure, hospitality, travel and back to office poised to support sector. Valuations create prospects for M&A.
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Industrials
Rating: Outperform
Rationale: Aerospace, manufacturing and construction likely to drive demand for industrial products. Defense spending likely to rise with mounting geopolitical tensions.
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Consumer Staples
Rating: Perform
Rationale: This defensive sector remains attractive given near-term economic uncertainty. Although valuations remain rich, opportunities may arise on market downdrafts.
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Energy
Rating: Perform
Rationale: Rising demand while production is hampered is likely to persist through the second half of 2022.
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Utilities
Rating: Underperform
Rationale: Attractive yields offset by sector’s role as bond proxy as interest rates normalize.
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Real Estate
Rating: Perform
Rationale: Commercial real estate in hightax urban areas remains a drag while low tax, suburban communities benefit from demographic influx.
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Materials
Rating: Perform
Rationale: Sector is likely to continue to benefit as domestic and global growth regains traction.
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Communications
Rating: Perform
Rationale: Exposure to tech-driven segments (5G, media, advertising streaming) provide longer-term opportunity.
Reach out to your Oppenheimer Financial Professional if you have any questions.
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