Market Strategy 4/06/2020
- April 6, 2020
We’ve Only Just Begun
Workin’ at “the mill” and the “every-day grind” never looked so good
Key Takeaways
- As investors start a holiday-abridged week (with equity markets to close on Good Friday) they will likely keep focus on developments tied to Covid-19 and the impact of the economic shutdowns.
- Last week’s employment report, which showed a decline of 701,000 jobs, was likely only part of the job losses that are expected to follow.
- Equity markets last week managed to show some resilience notwithstanding bad news on the Covid-19 front.
- This week’s economic data will provide insight into the Fed’s March FOMC meeting minutes, initial jobless claims and consumer sentiment.
On Sunday with investors and billions of other humans hunkered down across a world that’s seeking to stem the spread of the Covid-19 virus, markets across the globe prepared to open for another week confronted by a situation that broadly defies imagination.
The shuttering of much of the US economy with a vast segment of the US population “sheltered in place” has created an unprecedented economic nightmare for government officials, businesses and households in the US as well as in other countries around the world.
Volatility across asset classes over the quarter just ended and through last Friday rivaled historic precedence empowered by algorithmic trading and panic-like behavior by more than a few investors.
And yet notwithstanding the havoc that Covid-19 has spewed so far across the globe and its destruction of innocent lives and the plans and hopes of others there’s been no shortage of good people who have risen to the occasion yet another time in the history of humanity to minister to the sick, lend a helping hand to a neighbor less fortunate, and to seek methodologies of herculean efficacy to stem the spread of the virus.
For now the impact on the US economy being broadly placed on “pause” will be determined to a large extent by how long it takes to stem the virus’ spread.
Last week saw stocks as illustrated by the S&P 500 bounce between gains and losses as traders and investors attempted to sort out news crossing the tape from moment to moment and day to day that raised hopes one day, dashed them the next on issues tied to: Covid-19, prospects for the domestic and global economy, surging unemployment, falling job numbers, government programs to stem the tide and the start of Q1 earnings season next week when the big banks and other household names report revenues and earnings.
It’s a “fasten seatbelts—serious turbulence ahead” environment for now. At the home level “shelter in place” living is causing not just a few folks to long (if not for the daily commute), for the camaraderie and interaction of the work place.
Three weeks into the US experience with “shelter in place” mode and with the likelihood (based on what officials are saying in their daily missives) of more than a month or two more of the current regime “cabin fever” is surfacing in more than a few households.
Based on the experiences of China, South Korea, and Taiwan, which have managed to experience positive outcomes in their battles with Covid-19, we can expect things are likely to get worse for now on the virus front rather than better as the insidious Covid-19 runs its course before it flattens and fades out as viruses have been known to do.
For now the impact on the US economy being broadly placed on “pause” will be determined to large extent by how long it takes to stem the virus’s spread.
Until the virus shows a decline in its trajectory and rolls over, a semblance of normalcy will likely remain out of reach. The ultimate extent of the damage to the economy and the corporate sector will be hard to determine in the near term and will likely vary greatly within segments of the economy and sectors of the markets.
For now the markets will likely remain hostage to news on how long it will take to “get back to business” and “the good life.” We’d expect markets to continue trading on a combination of fear, technical factors and wistful hope with fundamentals clouded by the uncertainty weaved by the insidious virus.
That said many advancements in technology, pharmacology, biotechnology, and medical equipment exist and are growing in sophistication and efficacy empowered by technology giving us expectations that the risk will be mitigated likely sooner than skeptics expect but not as quickly as we’d like to see.
Diversification, patience and right-sized expectations remain in our view the most practical discipline for investors to deploy. We suggest building shopping lists of stocks with an eye for “babies that get thrown out with the bathwater” in turbulent market interludes.
While we continue to favor cyclical sectors over defensive sectors we have recently become selective in the latter space as some “babies” within that space have been tossed out with the bathwater. Our overall focus persists with cyclical sectors including technology, consumer discretionary, and industrials looking particularly attractive for when the tide turns against Covid-19 and the world of opportunity we have come to know becomes more evident.
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
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. 2020.