Where We Stand in the Midst of Covid-19
John Stoltzfus, Chief Investment Strategist at Oppenheimer Asset Management, Inc., explains his top-down view of markets, the economy and asset allocation.
Economic Growth
Covid-19 challenges near-term growth projections. Social distancing and sheltering in place has led to shutdowns expected to hamper growth in the first half of 2020. We may see a third-quarter rebound as the virus peaks and monetary policy, fiscal stimulus and financial aid kick in.
Current View: Neutral
Equities
Volatility should ease as the outbreak is met with greater efficacy. Business rescue programs, monetary policy and fiscal stimulus should stabilize markets and foster sustainable rallies as economic green shoots reemerge. We suspended our price target until volatility abates.
Current View: Positive
Fixed Income
The U.S. bond market is expected to benefit from support from the Federal Reserve. Bond yields are likely to remain near historical lows, which should create liquidity for bond investors and improve the relative attractiveness of equities and real assets.
Current View: Neutral
Inflation
Covid-19 has proven to be disinflationary for the global economy. For now, the challenge for global central banks will be to counter disinflationary (and deflationary) pressures stemming from economic shutdowns and disruptions to businesses and employment.
Current View: Positive
Employment
After record employment levels in 2019, we’re now likely to see record-high unemployment with a potential “back to work” resurgence in the third quarter. Meantime, massive rescue programs for businesses and the unemployed should provide transitional support.
Current View: Neutral
Oil
An agreement to limit OPEC production in mid-April 2020 should provide support to the energy sector in the face of a steep drop in demand as Covid-19 shutdowns persist. As economic growth returns, oil prices may return to pre-outbreak levels.
Current View: Negative
Currencies
We expect the unprecedented levels of economic stimulus and rescue spending to soften the strength of the U.S. dollar even as it remains a safe harbor currency during the Covid-19 crisis.
Current View: Neutral
Monetary Policy
The Fed’s unprecedented support for the U.S. economy remains a key underpinning for financial and real assets.
Current View: Positive
Public Policy
Stimulus and economic rescue policy spending likely to increase even further with a potential for higher infrastructure outlays.
Current View: Neutral
International Markets
We expect international markets to follow the U.S. in a global economic recovery in time as the Covid-19 virus’ grip on the world subsides.
Current View: Positive
Sector Views
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Technology
Rating: Outperform
Rationale: Broad-based innovation wave, net cash and low debt. New technologies to boost productivity across sectors.
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Financials
Rating: Outperform
Rationale: Low deposit rates, high credit-card rates and a lucrative fee regime support earnings growth, especially at well-capitalized big banks.
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Health Care
Rating: Perform
Rationale: Covid-19 elevates focus on health care. Longer-term fundamentals remain intact for pharma and biotech.
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Consumer Discretionary
Rating: Outperform
Rationale: Commerce capability in a social-distancing, shelter-in-place world. The virus presents both risks and opportunities with winners and losers.
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Industrials
Rating: Outperform
Rationale: Infrastructure program likely in the offing, which will benefit the sector.
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Consumer Staples
Rating: Perform
Rationale: This defensive sector benefits from Covid-19-related demand surge.
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Energy
Rating: Underperform
Rationale: Dramatic drop-off in demand related to Covid-19 shutdowns worldwide has a produced a glut that illustrates vulnerabilities within the sector.
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Utilities
Rating: Underperform
Rationale: Attractive yields, regulatory support should prop up utilities even as reduced economic activity dents earnings.
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Real Estate
Rating: Perform
Rationale: Negative impact of Covid-19 on commercial and residential subsectors present near and longer term risk.
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Materials
Rating: Perform
Rationale: Sector likely to be major beneficiary as global growth reasserts when Covid-19 risk subsides.
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Communications
Rating: Perform
Rationale: Fierce price competition between dominant players and rising cost of content offset by increased demand for streaming services amid Covid-19 crisis.
Reach out to your Oppenheimer Financial Advisor if you have any questions.
Opinions are subject to change without notice. Information and statistical data were obtained from sources we believe to be reliable. Past performance is not a guarantee of future results. OAM Consulting is a division of Oppenheimer Asset Management Inc. (OAM). OAM is an indirect, wholly owned subsidiary of Oppenheimer Holdings Inc., which also indirectly wholly owns Oppenheimer & Co. Inc. (Oppenheimer), a registered broker dealer and investment adviser. Securities are offered through Oppenheimer. For information about the advisory programs available through OAM and Oppenheimer, please contact your Oppenheimer financial advisor for a copy of each firm’s ADV Part 2A. Investing in securities entails risk, including loss of principal. 2025434.10