Market Strategy 3/01/2021
- March 1, 2021
Thanks! I Needed That
Last week’s volatility in the bond market caused equity benchmarks to give back some of their recent gains.
Key Takeaways
- Progress around the $1.9 trillion relief bill and economic data this week which culminates with the February non-farm payrolls report are likely to capture the attention of markets and investors this week.
- Last week’s run up in Treasury yields in our view suggests an improvement in the economic outlook rather than concern for untoward levels of inflation ahead.
- Q4 earnings season moved toward closure. With 97% of companies in the S&P 500 having reported profits are up 5.37% on the back of 2.47% revenue growth—a much stronger result than had been anticipated by consensus analytics at the start of the season.
- In addition to the payrolls report, we’ll also see purchasing managers data on manufacturing and services, construction spending, and consumer credit.
- We also discuss the significance of rising copper and oil prices, which we believe are reflective of an economic recovery ahead.
Stocks took a haircut last week on the back of a bond market tantrum tied to the latter’s longstanding mistrust of monetary policymakers’ ability to navigate reflation as the US economy stands poised to move towards a new round of economic re-openings with the potential for an economic recovery.
With the Biden administration and the House of Representatives pushing hard to enact the next “bridge over troubled waters” in the form of a mega $1.9 trillion relief bill concerns about what effect a program of such size could have on interest rates and the rate of inflation longer term are popping up.
Voices expressing concern cross political party lines, investor groups as well as a host of other constituencies from Main Street to Wall Street to Capitol Hill.
With economic data continuing to show considerable resilience even as evidence of weakness remains from those segments of the economy that remain shuttered the dispute centers not on whether another tranche of rescue funding is needed; but around the cost and the size of said package and some of its components, which appear defined along party lines.
If anything most everyone would appear to agree that for all the good news regarding the efficacy of the vaccines, the resilience of economic data and Q4 S&P 500 corporate earnings the fact is—we’re still not out of the proverbial woods yet when it comes to pushing Covid-19 into the rearview mirror of history and getting the economy to run again on all its cylinders.
The rise in copper prices serves as a sign that expectations are for global growth to accelerate as the world moves out from under the pandemic.
The good news is that a rescue package is waiting in the wings. The bad news is the political hurdles to be traversed over the course of this week and perhaps longer remain potential sources of volatility for the bond and stock markets to navigate.
Last week saw the yield on the US 10-year Treasury surge some 13.78% with its yield rising from 1.34% on February 19 to 1.52% at close on Thursday (peaking at a high of 1.61% intra-day). Last Friday saw a tempering of market fear emerge with the US Treasury 10-year yield ending the week at 1.41% as cooler heads seemed to prevail.
In our view where the yield on the US 10-year Treasury has come from since hitting a low of 0.508% on August 4, 2020, to its intra-day high last Thursday at 1.61% (the highest since February 2020) points not toward an impending spike of inflation ahead that might cause the Fed to dramatically raise interest rates and possibly derail prospects of a stateside economic recovery but rather reflects that as the pandemic crisis begins to ebb better times are likely ahead for the US economy.
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.