Market Strategy 5/18/2020
- May 18, 2020
Taking Care of Business
How to safely reopen the world’s largest economy becomes the challenge
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.
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.”
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.
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.