Market Strategy 3/08/2021
What, Me Worry? Transitions Are Never Easy
Key to navigating a period of transition is to keep things in context and expectations right-sized.
Key Takeaways
- Economic data, the yield on the 10-Year Treasury note, and the likely passage of the $1.9 trillion economic relief bill will garner investor attention this week.
- Q4 earnings season moved toward closure. With 99% of companies in the S&P 500 having reported profits are up 5.29% on the back of 2.66% revenue growth—a much stronger result than had been anticipated by consensus analytics at the start of the season.
- February’s payroll figures released last Friday signaled progress for the US economy and provided a boost to stock prices.
- Tuesday marks the 12th anniversary of the stock market’s bottom in the Great Financial Crisis.
Investors this week will likely stay focused on: interest rates as reflected by the yield on the 10-year Treasury, the price of a barrel of oil, and any economic data crossing the proverbial transom that might provide additional clarity as to what prospects there are for inflation as more folks get vaccinated stateside and around the world and prospects for a global economic recovery grow by the day.
Last Friday it was a significantly better than expected payroll number that gave the stock market a boost out of its recent funk, even as the yield on the 10-year Treasury nudged higher. Over the weekend news that China’s export numbers significantly exceeded expectations added credence for the case that indeed the global economy is headed in the right direction.
On the vaccine front the initial stumble in vaccine distribution is being remedied on a day by day basis.
A third vaccine by a major pharmaceutical company added to the roster of approved vaccines for distribution in the US last week is likely to boost progress in getting a larger segment of the population stateside inoculated.
In the week ahead the markets will look to take direction from a raft of economic data tied to wholesale inventories, small business optimism, consumer price inflation and producer price inflation.
The passage of the $1.9 trillion economic rescue program will be vetted by bulls and bears seeking to get a read on how it will affect the economy, inflation and the markets. The market will remain highly sensitive as to how effective the implementation of this latest tranche of economic rescue will be.
With the passing of the gargantuan bill expectations could turn toward the potential for the long awaited infrastructure program in the US. Even though infrastructure is widely considered to be the program both sides of the political aisle are ready to embrace, the sticking points are likely to be the structure of such a program, whose constituencies are most likely to benefit as well as the cost and how such a program will be funded.
Hey honey, don’t forget our anniversary!
Tuesday March 9th marks the 12th anniversary of the bottom in the equity market (as represented by the S&P 500) in the Great Financial Crisis. We remember the day all too well: the preponderance of doomsayers who stepped to the front of the screen predicting that things could only get worse. The very next day the equity market began to rally carried on the wings of stimulus provided by the Federal Reserve. That “next day rally” moved ahead over the next 11 years not withstanding a number of pullbacks of as much as nearly 20%—until Covid19 overwhelmed the landscape and disrupted a multiplicity of economies, societal entities and markets around the world.
It took around six and a quarter years for the S&P 500 to get back to its pre-financial crisis high of 1565. From the pre-pandemic crisis high on the S&P 500 of 3386.15 it took just six months to midAugust 2020 to get to the pre-crisis high and then move higher. Talk about a “warp speed” recovery.
In our view a large part of the recovery process from the latest crisis can be attributed to the quick response of the Federal Reserve to the situation and its sensitivity to the needs of the economy it honed in the prior crisis. The combined efforts of the past Administration, both aisles of Congress, medical personnel and the health care sector as well as the efforts of the new administration added momentum and depth of response that while expensive contributed to the successes thus far in meeting the challenges from Covid-19.
We continue to favor equities in the current transitionary environment. We remain overweight US equities while maintaining meaningful exposure to international developed and emerging equity markets. We persist in favoring information technology and cyclicals over defensive sectors. For style we prefer a barbell approach maintaining exposure to growth in what is likely to remain a low interest rate environment even as yields move higher in response to what we expect will be a sustainable economic expansion stateside that will feed a global economic recovery.
Among the immediate risks that lie on the landscape are Covid-19 and its variants, the process of economic re-openings stateside and elsewhere around the world that lie ahead, domestic politics, geopolitics and the perennial risks that lie in the realm of the unexpected
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.