Market Strategy 5/16/2022
- May 16, 2022
The Good, the Bad and the Ugly
Volatility persists as markets navigate policy change and uncertainties
Key Takeaways
-
With 457 or 91% of the firms in the S&P 500 having reported, earnings in Q1 are up 10% from a year ago on revenue growth of 14.2%.
-
Key economic data scheduled for release this week includes updates on Manufacturing, Retail Sales, Housing, and Jobs which should provide clues as to how the economy is weathering the Fed’s rate hike cycle.
-
Our review of forward P/E ratios shows nine S&P 500 sectors as of last Friday at forward P/E multiples below their five-year averages.
-
April inflation readings released last week moved in the right direction but only slightly, disappointing some market participants.
Last week saw stocks swing and sway between gains and losses as nervousness about the direction of interest rates, inflation, supply chain dysfunction, China’s zero tolerance policy to COVID-19 variants and geopolitical tension captured sentiment on Wall Street and markets around the world.
Comments from Fed Chair Jerome Powell toward the end of last week appeared to assuage the beast of dark sentiment and negative projections that held markets hostage to see stocks regain some of what they’d shed earlier in the week.
Last Friday the Dow Jones Industrial Average, the S&P 500, the S&P 400 (mid-caps), the S&P 600 (small caps), the Russell 2000 and the NASDAQ Composite all closed up on the day with respective gains of 1.47%, 2.39%, 2.57%, 2.4%, 3.06% and 3.82%.
For the week the aforementioned indices shed: 2.14%, 2.41%, 2.02%, 1.61%, 2.55% and 2.8%.
The week ahead will find traders and investors focused on economic data and the results of the few S&P 500 companies left to report results for Q1.
What is surprising is the relative resilience of the US economy, segments of the world economy and the relative strength of corporate entities and the consumer through it all.
The Week Ahead
Economic data scheduled for release this week tied to manufacturing, retail sales, the housing market and jobs will be perused and pondered by traders and investors for clues to how the economy is weathering the Federal Reserve’s start to the rate hike cycle currently underway.
As the S&P 500’s Q1 earnings season nears a close the results from a mix of widely followed companies across key sectors including Consumer Discretionary, Consumer Staples, Information Technology and Industrials will be pondered along with any guidance provided by management as to what may lie ahead as the year unfolds.
Thus far with some 457 companies of the benchmark’s 500 companies having reported, earnings are up 10.03% for Q1 on back of 14.24% revenue growth. As of last Friday, nine of the eleven sectors were showing positive earnings growth with all eleven sectors showing positive revenue growth in the period.
-
Energy with all 21 companies in the sector having reported has shown the best earnings growth in Q1 with earnings up 275.68% y-o-y on back of 59.01% revenue growth
Five sectors thus far have posted double digit earnings growth including:
-
Materials with all 28 companies in the sector having reported showed earnings up 42.59% on back of 24.14% revenue growth y-o-y
-
Industrials with 68 of 71 companies in the sector thus far shows earnings up 34.48% on back of 12.16% revenue growth
-
The Real Estate sector with 29 of 29 companies having reported posted earnings growth of 30.83% on back of 20.46% revenue growth
-
Health care with 62 of 65 companies in the sector reported thus far shows 16.21% earnings growth on back of 14.68% revenue growth
-
Information Technology with 62 of 76 companies having reported as of the end of last week showed earnings up 10.65% on back of 12.04% revenue growth.
We Can Work It Out
A multiplicity of factors (including those we listed at the beginning of this week’s piece) over the course of 18 weeks this year has seen US stocks shed some $10 trillion (according to Bloomberg News). For all the significance of that number we’d suggest that considering the levels of uncertainty raised by a much needed Federal Reserve change of monetary policy (from the levels of overly generous accommodation reached during the pandemic); the ramp up of geopolitical tensions caused by Russia’s incursion into Ukraine and the aggravation of an already dysfunctional global supply chain along with further disruption from the shuttering of key manufacturing cities in China due to zero tolerance to COVID outbreaks—what has come to pass should not be all that overwhelming to consider.
What is surprising is the relative resilience of the US economy, segments of the world economy and the relative strength of corporate entities and the consumer through it all. We’ll attribute at least some of that resilience thus far exhibited to experience gathered by business, consumers and policy makers over the course of the past 14 years in the process of working through two major crisis (The Great Financial Crisis and the COVID pandemic).
In our view, key to positive resolution of the current challenges on the US landscape is the level and quality of response that lies ahead. We have found that progress not perfection is what counts in taking action toward “finding the way out of the proverbial woods”.
John Stoltzfus
Title:Chief Investment Strategist, Oppenheimer Asset Management Inc.
John is one of the most popular faces around Oppenheimer: our clients have come to rely on his market recaps for timely analysis and a confident viewpoint on the road forward. He frequently lends his expertise to CNBC, Bloomberg, Fox Business, and other notable networks.
OTHER DISCLOSURES
Strategist Certification - The author certifies that this investment strategy report accurately states his/her personal views about the subject securities, which are reflected in the substance of this investment report. The author certifies that no part of his/her compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this investment strategy report.
The strategy provided in this report is provided by Oppenheimer Asset Management Inc., (“OAM”) a registered investment adviser affiliate of Oppenheimer & Co. Inc. (“OPCO”). It reflects analysis of fundamental, macroeconomic and quantitative data to provide investment analysis with respect to U.S. securities markets. The overview in this report is provided for informational purposes and does not constitute an offer to sell, a solicitation to buy, or a recommendation for any security or investment advisory services. The report is not intended to provide personal investment advice. The investments discussed in this report may not be suitable for all investors. Investors should use the analysis provided by this report as one input into formulating an investment opinion and should consult with their Financial Advisor. Additional inputs should include, but are not limited to, the review of other strategy reports generated by OAM, its affiliates, and looking at alternate analyses. Securities and other financial instruments that may be discussed in this report or recommended or sold by OPCO or OAM are not insured by the Federal Deposit Insurance Corporation and are not deposits or obligations of any insured depository institution. Investments involve numerous risks including market risk, counterparty default risk and liquidity risk. Securities and other financial investments at times may be difficult to value or sell. The value of financial instruments may fluctuate, and investors may lose their entire principal investment.
Strategist Certification - The author certifies that this strategy report accurately states his/her personal views about the subject matter reflected in the substance of this report. The author certifies that no part of his/her compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this strategy report.
Potential Conflicts of Interest: Strategic analysts employed by OAM are compensated from revenues generated by the firm. The strategists authoring this piece also contribute to an OAM managed portfolio product that relies on and trades on the information contained herein. The managed portfolio strategy trades frequently, both ahead of and after the publication of this report. OAM generally prohibits any analyst and any member of his or her household from executing trades in the securities of a company that such analyst covers. Additionally, OAM generally prohibits any analyst from serving as an officer, director or advisory board member of a company that such analyst covers. In addition to 1% (or more) ownership positions in covered companies that are required to be specifically disclosed in this report, OPCO may have a long positon of less than 1% or a short position or deals as principal in the securities discussed herein, related securities or in options, futures or other derivative instruments based thereon and makes a market in the securities discussed herein. Recipients of this report are advised that any or all of the foregoing arrangements, as well as more specific disclosures set forth below, may at times give rise to potential conflicts of interest.
Third Party Research Disclosure OAM has a research sharing agreement with OPCO pursuant to which OPCO provides OAM Strategy thought pieces to its institutional and retail customers. OPCO does not guarantee that the information in OAM Strategy reports is accurate, complete or timely, nor does OPCO make any warranties with regard to the strategy product or the results obtained from its use. OPCO has no control over or input with respect to opinions found in OAM strategy pieces. OAM is a registered investment adviser affiliate of OPCO.
This report is issued and approved by Oppenheimer & Co. Inc., a member of all Principal Exchanges, and SIPC. This report is distributed by Oppenheimer & Co. Inc., for informational purposes only, to its institutional and retail investor clients. This report does not constitute an offer or solicitation to buy or sell any securities discussed herein in any jurisdiction where such offer or solicitation would be prohibited. The securities mentioned in this report may not be suitable for all types of investors. This report does not take into account the investment objectives, financial situation or specific needs of any particular client of Oppenheimer & Co. Inc. Recipients should consider this report as only a single factor in making an investment decision and should not rely solely on investment recommendations contained herein, if any, as a substitution for the exercise of independent judgment of the merits and risks of investments. The strategist writing this report is not a person or company with actual, implied or apparent authority to act on behalf of any issuer mentioned in the report. Before making an investment decision with respect to any security discussed in this report, the recipient should consider whether such investment is appropriate given the recipient's particular investment needs, objectives and financial circumstances. We recommend that investors independently evaluate particular investments and strategies, and encourage investors to seek the advice of a financial advisor. Oppenheimer & Co. Inc. will not treat non-client recipients as its clients solely by virtue of their receiving this report. Past performance is not a guarantee of future results, and no representation or warranty, express or implied, is made regarding future performance of any security mentioned in this report. The price of the securities mentioned in this report and the income they produce may fluctuate and/or be adversely affected by exchange rates, and investors may realize losses on investments in such securities, including the loss of investment principal.
Oppenheimer & Co. Inc. accepts no liability for any loss arising from the use of information contained in this report. All information, opinions and statistical data contained in this report were obtained or derived from public sources believed to be reliable, but Oppenheimer & Co. Inc. does not represent that any such information, opinion or statistical data is accurate or complete and they should not be relied upon as such. All estimates and opinions expressed herein constitute judgments as of the date of this report and are subject to change without notice. Nothing in this report constitutes legal, accounting or tax advice. Since the levels and bases of taxation can change, any reference in this report to the impact of taxation.
Investment Strategy should not be construed as offering tax advice on the tax consequences of investments. As with any investment having potential tax implications, clients should consult with their own independent tax adviser.
This report may provide addresses of, or contain hyperlinks to, Internet web sites. Oppenheimer & Co. Inc. has not reviewed the linked Internet web site of any third party and takes no responsibility for the contents thereof. Each such address or hyperlink is provided solely for the recipient's convenience and information, and the content of linked third party web sites is not in any way incorporated into this document. Recipients who choose to access such third-party web sites or follow such hyperlinks do so at their own risk. The S&P 500 Index is an unmanaged value-weighted index of 500 common stocks that is generally considered representative of the U.S. stock market. The S&P 500 index figures do not reflect any fees, expenses or taxes. This research is distributed in the UK and elsewhere throughout Europe, as third party research by Oppenheimer Europe Ltd, which is authorized and regulated by the Financial Conduct Authority (FCA). This research is for information purposes only and is not to be construed as a solicitation or an offer to purchase or sell investments or related financial instruments. This report is for distribution only to persons who are eligible counterparties or professional clients and is exempt from the general restrictions in section 21 of the Financial Services and Markets Act 2000 on the communication of invitations or inducements to engage in investment activity on the grounds that it is being distributed in the UK only to persons of a kind described in Article 19(5) (Investment Professionals) and 49(2) High Net Worth companies, unincorporated associations etc.) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended). It is not intended to be distributed or passed on, directly or indirectly, to any other class of persons. In particular, this material is not for distribution to, and should not be relied upon by, retail clients, as defined under the rules of the FCA. Neither the FCA’s protection rules nor compensation scheme may be applied. This report or any portion hereof may not be reprinted, sold, or redistributed without the written consent of Oppenheimer & Co. Inc. Copyright © Oppenheimer & Co. Inc. 2022.