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Market Strategy 4/15/2019

  • John Stoltzfus
  • April 15, 2019

Dear Prudence, Won’t You Come Out to Play?

With major indices close to all-time highs, practicing patience may prove to be prudent for investors

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.

stock charts

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.

Quotation from Aenean Pretium

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.

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.  

John Stoltzfus of Oppenheimer Asset Managment Inc.

John Stoltzfus


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.

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