Market Strategy 10/25/2021
- October 25, 2021
Don’t ask “are we there yet?” but rather “where to from here?”
This week will have plenty of things to grab investors’ attention with three of six major US equity benchmarks having closed at record highs last week.
Key Takeaways
- With 117 of the S&P 500’s companies having reported Q3 results thus far, earnings are up 46.09% on back of 16.08% revenue growth.
- This week 164 S&P 500 companies are scheduled to report including a brace of widely followed names in Information Technology, Consumer Discretionary, Consumer Staples, Industrials, Healthcare, Energy and Communications Services.
- The 10-year Treasury Yield approached the high for the year last Thursday as concerns about inflation increased.
- The Conference Board’s index of leading indicators rose just 0.2% in September, its weakest monthly reading since February. Among the ten index’s that make up the overall index, six saw gains.
Stocks stateside start this week with three major US indices having reached new record highs over the course of last week. The Dow Jones Industrial Average closed at a record high of 35,677.02 last Friday. Less celebrated in the weekend press was the S&P 400 (mid-cap stocks) which closed at its respective record high on Friday of 2,796.84. On Thursday the S&P 500 closed at its latest record high of 4,549.78.
We should note that the S&P 600, the Russell 2000 and the NASDAQ last reached their respective record highs on June 8, March 15 and September 7 of this year. On the week the Dow Jones Industrial Average, the S&P 500, the S&P 400 (Midcaps), the S&P 600 (small caps), the Russell 2000 (small caps) and the NASDAQ
Composite (some 40% weighted in technology or tech-related stocks) on the week respectively gained: 1.08%, 1.64%, 1.77%, 1.26%, 1.13% and 1.24%.
On a year-to-date basis these same six indices are up respectively: 16.57%, 21%, 21.25%, 23.43%, 16.02% and 17.08%.
Economic data pointing to stickier than expected levels of inflation… are rattling the bond market some but not yet the stock market.
The best performance among the six aforementioned benchmarks is the S&P 600 (small caps) up some 23.43% year-to-date which is often overlooked by observers and even many investors when comparing relative performance of market capitalizations. The worst performer among the six sectors is the Russell 2000 (small caps). Issues of quality among its components are likely the reason for the performance disparity between the two small cap benchmarks.
The relative performances of these indices in our view suggests to us that institutional and private investors are likely seeking broad diversification among stocks rather than just piling into one or two or even three major indices. These six indices in aggregate after all represent broad exposure within sectors (the GICs 11 key sectors), sub sectors (industries), market capitalizations (large, mid and small) as well as style (Growth and Value).
The broad diversification represented by these benchmarks and their overall performance thus far this year suggests that investors are anticipating a successful reopening of the US economy and modest increases in fixed income yields as supply chain disruptions and labor shortages are remedied over the course of 2022.
Meanwhile back at the ranch
While US stocks moved higher last week the price of the 10-year US Treasury moved lower last week as its yield ticked higher to close the week at a yield of 1.632% after closing the day before at 1.701% or around 4 basis points lower than its high of 1.742% for this year on March 31.
Economic data pointing to stickier than expected levels of inflation tied to supply chain disruptions and labor shortages along with accommodative monetary policy and stimulus rescue programs from Washington that may have over stimulated the economy are rattling the bond market some but not yet the stock market.
Ongoing negotiations in Congress to trim the cost of the next round of policy related stimulus along with the Federal Reserve likely on the verge of starting tapering of its monthly bond buying program (as soon as next month with prospects for an upward tweak to its benchmark rate next year) could set the stage for stocks to move higher through the end of this year—notwithstanding a set-back in the economic re-opening caused by a Covid-19 variant or an unforeseen catalyst which would justify some profit taking without FOMO (Fear of Missing Out) by bears, skeptics and nervous investors.
While Congress, the Administration and the Federal Reserve move toward the next big catalyst for the market to ponder many investors will be focused on a busy week in Q3 earnings season with 164 S&P 500 companies including a brace of widely followed technology companies scheduled to report results over the course of the week. So far this earnings season, with 23.4% of the S&P 500’s companies having reported, earnings are up 46.09% on back of 16.08% revenue growth and 84% of the companies that have reported have beaten estimates.
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.
Additional Market Insights
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.