Market Strategy 4/15/2019
Dear Prudence, Won’t You Come Out to Play?
Key Takeaways
- For a second week, stocks inched closer to new record highs as earnings, M&A activity and positive news on trade negotiations gave a boost to equities.
- Economic data showed inflation likely not to be an issue for the Federal Reserve in the near term, improving investor sentiment.
- This week’s economic calendar should provide further clarity as to the sustainability of economic growth stateside as production and capacity utilization rates are revealed.
- US bond prices appear near-term vulnerable, should a trade resolution bring about a re-rating of economic growth forecasts.
Even as markets open to a holiday-abridged week in many parts of the world, investors will likely keep watch for developments on the trade negotiation front, progress in Q1 earnings season as well as on economic data stateside and in the international realm.
Last week, stocks got a boost from positive earnings from a major bellwether component of the banking sector and the announcement of a sizable acquisition by a bellwether in the energy sector at an eye-catching premium.
With just 29 companies in the S&P 500 having reported results for Q1 earnings season through last Friday, it’s way too early to call the season. However, last week’s results were good enough to ease some of the fear and loathing that bears had tried to impose on the market as earnings season approached.
With just 29 companies in the S&P 500 having reported results for Q1 earnings season through last Friday, it’s way too early to call the season. However, last week’s results were good enough to ease some of the fear and loathing that bears had tried to impose on the market as earnings season approached.
Expectations among investors have improved as the season as gotten under way. The proof, of course, is always ultimately in the pudding. That said, we remain in the camp that expects that earnings for Q1 will surprise positively enough to provide further support for equity prices near term. Many times prior to last year’s tax reform-aided results, we have seen consensus estimates slashed ahead of earnings season which resulted in lower hurdles for companies to clear. This has tended to lead to positive surprises. History may have a chance, if not to repeat, to at least rhyme once again.
The real boost for stock prices this year will likely come when and if a trade deal is successfully arrived at. With a trade resolution, we would expect economists and the analytical community to sharpen their pencils, resulting in a broad global upgrade of growth expectations.
It’s too early to bring out the party hats, but news reports emanating from around the negotiations through this weekend have been indicating that real progress is being made between the US and China.
It has been our belief for some time now that both sides are eager to arrive at a resolution. The goal-oriented objectives of the two countries’ respective leaders (around the presidential election stateside in 2020 and the Made in China 2025 objective) provide incentive for negotiators to get a deal of some substance done.
Furthermore, even as neither side has been eager to acknowledge the economic damage caused thus far to their respective economy or to the global economy as a result of the dispute, investors and market observers have heard plenty of complaints from business leaders stateside and around the world about the disruption caused as tariffs were imposed and expanded by both combatants during the past year.
We are reminded by experience, however, of the old adage “as one door closes, another opens” as threats of a trade dispute over automobiles and airplanes between the US and Europe are heating up.
Earnings Season Continues this Week
In the week ahead, 46 companies in the S&P 500 are scheduled to report, including widely followed names and sector bellwethers in financials, industrials, health care, communications, consumer staples and information technology. These reports could provide investors with further clarity as to the health of revenue and earnings growth in the year following year one of the tax reform package.
Over the course of the next few days, a brace of economic data will be released as well. This data should shed further light on the sustainability of the current expansion stateside.
We continue to favor equities; cyclicals over defensive stock sectors, and market cap weightings near “agnostic” (near equal exposure to large, mid- and small caps) in a market environment prone to rotation and rebalancing.
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. 2015.