Skip to Main

Market Strategy 5/26/2020

  • John Stoltzfus
  • May 26, 2020

When in Doubt, Check the “Thematics”

With the S&P 500 index up about 32% from its March 23 low, investors search for a catalyst to define the market’s next move
Key Takeaways
  • With earnings season winding down, COVID-19 news and economic data will likely capture center stage in the week ahead.
  • Economic data this week will include housing, a revision to Q1 GDP, and consumer confidence.
  • We are updating our ratings and suggested allocations to the S&P 500 sectors. We have changed our rating for the real estate sector from Perform to Underperform.
  • We offer strategic musings on thematic investment ideas.
  • Last week’s economic data included the Leading Economic Index, which showed a small decline in April than in March. 

Around two and a half months into the shutdown and living close to the epicenter of the stateside COVID-19 emanation, we’re seeing a return of automobile traffic on First Avenue in midtown Manhattan that’s reminiscent of if not quite equal to late-summer activity and busy enough to keep a pedestrian on his toes. The sidewalk traffic has increased with folks headed to the market or the park or just out for a stroll, keeping hardcore denizens of “Coronaville” (those who didn’t find or seek exile outside the city limits for the darkest period of the crisis) cognizant of just how narrow side street and avenue sidewalks are. Face masks remain prominent with some of us looking like pals of Spiderman, if not quite like hoodlums plotting a stick-up or a jewel heist.

Our friends outside of the epicenter and the areas closest to it complain that things aren’t opening up fast enough for them. Even in our proud city humbled by the pandemic, there are those who rebel, don’t wear masks, and don’t keep their distance. Dirty looks surface quickly when the non-compliant (mask-less, non– social distanced types) appear on the horizon.

Time will tell whether the current gradual reopening of the economy stateside and in other parts of world is well timed or too early. For now, whether it’s the “flattening of the curve” or the warmer weather and several days of glorious sunshine, there’s a good vibe rising. We’ll leave the party hats in the box for now and stay masked, social distanced, and sheltered in place for the most part until our governor gives us the okay.

Quotation from Aenean Pretium

The first-quarter earnings season has clearly identified winners versus losers in an unprecedented period of market history.

Stock market activity has suggested for some time now— in defiance of bears’ growling, skeptics’ disbelief, and even bulls’ wariness—that indeed we’re headed out of the woods, notwithstanding all the uncertainties that come with a global pandemic, the negative impact to the economy and business from a health emergency-induced shutdown, and political jousting on the domestic and geopolitical fronts

Earnings Season Wraps Up

With 478 of the S&P 500’s companies having reported results as of last Friday, Q1 earnings season is winding down. This week will include a number of widely followed names belonging to technology, financials, and retail.

So far this earnings season, revenues have grown 1.03% while earnings have fallen 7.68% from the same period a year ago. The first-quarter earnings season has clearly identified winners versus losers in an unprecedented period of market history. 

This abridged post-holiday week will see economic data on housing, consumer confidence, regional Federal Reserve Bank gauges of manufacturing and nonmanufacturing activity, and the Fed’s Beige Book, along with durable goods, GDP, and consumer confidence crossing the transom.

The economy and the markets remain to a large extent hostage to the progress made or not made in stemming the spread of COVID-19 on a day-to-day basis.

News flow on the pandemic front has grown more positive. There are stories of prospects for vaccines, drugs of greater efficacy to treat those afflicted, and prospects for more accurate testing and tracking crossing the tape near every day.

Conversations with clients have moved from being centered on the virus itself and the damage it had done to the price of stocks to how long will it take to get the economy reopened; whether there might be a second spike in infections in the fall; the valuation of the markets; second-quarter earnings season risk; and how the cost of the shutdown, the rescue programs created by Congress and the administration as well as the Fed’s magnanimous accommodation will be addressed in the years ahead. Some also express concern about whether current policy will generate inflation or deflation in the years ahead.

Though the particulars of this crisis are very different from the Great Financial Crisis a dozen years ago, there are similarities with regard to investors’ concerns and questions.

At the depths of the GFC, there was no shortage of opinions that said the Fed would fail to revive the US economy and the markets. Some believed that the liquidity the central bank pumped into the system would not only fail to revive the economy but would also unleash untoward levels of inflation—even hyperinflation.

That didn’t happen. Instead, an economic recovery which grew into a sustainable domestic expansion resulted in large part from the Fed’s efforts. Inflation was kept in check by the bank’s vigilance, aided by secular trends in technology and globalization, which are counterinflationary. We believe these trends remain in place and reduce the risk of high inflation from the current crisis’ rescue spending.

The multi-trillion-dollar cost of the Fed’s policy and the rescue packages implemented by Congress and the administration in the current crisis are likely in hindsight to have been essential responses in avoiding a longlasting recession or even a depression. Time will tell how those costs are dealt with post-crisis.

Investing in Times Like These

Economic data and corporate earnings are likely to remain challenged in large part until COVID-19 risk is further stemmed and the economy can find space and time to gain traction.

We view patience, fortitude, and conviction to be key virtues for investors to practice at all times but particularly in periods of crisis like this one. Know what you own, why you own it, and have right sized expectations as to how the components you hold in a diversified portfolio will perform in a transitional environment from crisis to recovery and beyond.

Thematic investment ideas or actionable investment themes can help professional and private investors to navigate through periods like these.

We believe we are fortunate to be at a juncture in history in which technology is driving dramatic but practical changes in business, private lives, education and government.

The ubiquitous nature of technology today influences all 11 sectors of the S&P 500 including information technology, consumer discretionary, industrials, health care, financials, materials, consumer staples, communication services, real estate, energy and utilities.

A short list of thematic ideas could include: leisure (videogames, sports, entertainment), defense (military equipment), cyber security, alternative energy, ESG companies, environmental solutions, electric automobiles, artificial intelligence (AI), solutions for manufacturing and services, E-commerce, IoT (internet of things), big data, autonomous vehicles, and many more.

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.

Hide Bio


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.