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Market Strategy 5/18/2020

  • John Stoltzfus
  • May 18, 2020

Taking Care of Business

How to safely reopen the world’s largest economy becomes the challenge
Key Takeaways
  • Stocks were subject to a trim last week as a spate of negative data rattled investor sentiment.
  • Much of the economic data released last week showed declines of unprecedented magnitude but the preliminary reading from the Michigan consumer sentiment survey showed evidence of optimism for what lies ahead. 
  • Last week’s equity action may have in large part been nervous investors and short-term traders taking the drops in economic data points as the catalyst they were looking for to take some profits without “FOMO.”
  • We update our earnings score card for the 91% of companies that have thus far reported. The season continues to reveal both winners and losers in a tough environment.

A strong desire for a return to normalcy stateside is rubbing up against concerns from health officials that getting the economy open for business too early could cause a flare up of the virus and set back the considerable progress made to stem its spread and keep hospitals from being inundated with very ill people.

The progress illustrated by the sizeable improvement in the shape of the curve in New York City (the epicenter of the pandemic in the US) is at the center of the latest bifurcation of opinion among Americans. Those outside the worst hit areas of the country are eager to get back to business and work towards restoring the economy as soon as possible while those in communities hit hardest and humbled by the pandemic’s devastation in their area opt to proceed with considerable caution before embracing the concept of a “post-Covid-19” environment.

A slug of disquieting economic data released stateside last week that included initial jobless claims along with precipitous declines in retail sales and in manufacturing data unsettled equity markets and cut into what had been a marked improvement in sentiment that had driven stocks higher in a series of rallies from the lows reached on March 23rd.

The nervousness that emanated from some corners of the market last week about equity valuations that have grown extended as consensus analyst forward projections move lower contributed as well to a jump in volatility that jostled stock prices last week.

Quotation from Aenean Pretium

Last week’s equity action may have in large part been nervous investors and short-term traders taking the drops in economic data points as the catalyst they were looking for to take some profits without “FOMO” (fear of missing out).

Ironically the nervousness and loss to positive sentiment in the week just ended didn’t seem to reflect much genuine surprise as investors in our view had prepared themselves and had earlier priced-in dramatic drops in upcoming data releases in consideration of the historically unprecedented shutdown of the world’s largest economy. Last week’s equity action may have in large part been nervous investors and short-term traders taking the drops in economic data points as the catalyst they were looking for to take some profits without “FOMO” (fear of missing out).

The cost of sheltering in place, social distancing, magnanimous monetary policy by the Fed along with a gargantuan bipartisan rescue package from the Administration and Congress is simply not something that is easy for all to digest. Such programs considered singularly and in aggregate generate their own levels of uncertainty as to how successful they will be or by how far they might miss their mark.

In our view the key to success of any project of such magnitude is not the progress made initially but the headway that is made over the course of time in applying it and making adjustments along the way.

The bad news is that all work-out situations come with high levels of uncertainty that will challenge the processes that are put in place to “right side the proverbial ship”. History repeatedly reminds us that optimism, patience, creativity, improvisation, intuition and brilliance have frequently “come to the rescue” in the history of our country and the world for that matter.

Looking back at the Great Financial Crisis we recall that in 2009 even as the economy and the markets began to emerge from the depths of that challenge skeptics and bears wrongly projected the failure of what would eventually become a novel rescue package (remember quantitative easing or QE?) that led to a sustainable economic recovery stateside and a bull market that ran just over 11 years before being broadsided by Covid-19.

As we begin a new week with all the opportunity and risk that may lie ahead we are reminded of the words attributed to the great American author Mark Twain, “history may not repeat itself but it often rhymes.”

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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