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Market Strategy 5/17/2021

  • John Stoltzfus
  • May 17, 2021

No Particular Place to Go

Between the end of Q1 earnings season and the start of the Q2 season stocks could drift while seeking their next catalyst
Key Takeaways
  • With 91% of companies in the S&P 500 having reported, earnings are up 47% on revenue growth of 9.8%. The current earnings season continues to exceed expectations.
  • The US economy and stocks continue to show remarkable resilience in the face of challenges that are typical of an exit from a major crisis. Near term, markets may find themselves with “no particular place to go” until Q2 earnings season provides clarity on corporate results and guidance.
  • A slew of economic data released last week provided insights to the process of reflation and risks of inflation in consideration of movements in commodity markets and other asset classes. We illustrate and comment on CPI inflation and commodity prices

With Q1 earnings season in the final stretch (with some 91% of the S&P 500’s member companies having reported thus far) and a brace of key jobs and last week’s inflation data in the rearview mirror stocks could for now be caught with “no particular place to go” while awaiting developments that could provide greater clarity as to the direction that stocks and bonds might take in the weeks and months ahead.

Last week saw stocks run the gauntlet on inflation fears, re-opening risks, domestic political risk and a jump in geopolitical tension. Stocks stateside moved broadly lower on the week with the Dow Jones Industrial Average, the S&P 500, the NASDAQ Composite, the S&P 400 (mid-caps) and the Russell 2000 (small caps) respectively shedding 0.48%, 0.66%, 1.49%, 0.64% and 0.75%.

In the last two days of the week stocks got some relief and room enough to rally as commodity prices took a breather and inflation worries ebbed. Energy and information technology stocks along with the communications services sector led a rally in the S&P 500 that saw all 11 sectors post gains last Friday on what seemed to be a feeling that the worst of the worries that had dragged stocks lower earlier in the week might have passed—at least near term.

Quotation from Aenean Pretium

A major challenge that lies ahead will be in determining at what point the “training wheels” of monetary policy and stimulus can come off to let the economy and the markets run the course at a more normal pace.

For now the markets stateside and abroad trade on developments tied to monetary and fiscal stimulus and the process of managing the way towards a post-Covid-19 period. So far this year the US and the international developed equity markets have led the emerging markets out of the proverbial “woods” in the transitional process with some observers attributing the difference to a more uniform management of the vaccination process and in responding to the variants of the virus which have surfaced.

That notwithstanding, the process of a global recovery could gain momentum in the months ahead as vaccinations move forward in areas of the world where distribution and acceptance have been in short supply until now.

So far in 2021 the US economy and stocks have shown remarkable resilience considering the challenges and uncertainties they face in the process of moving towards the “next new normal.” It’s no secret that a whole lot of love in the form of accommodative monetary policy from the Fed and gargantuan levels of stimulus from Capitol Hill have played a significant role to effect the process of navigating a landscape fraught with the uncertainties that come with any recovery from a major crisis.

A major challenge that lies ahead will be in determining at what point the “training wheels” of monetary policy and stimulus can come off to let the economy and the markets run the course at a more normal pace.

In our view the Federal Reserve is likely to manage its role with considerably more success than the skeptics would give them credit for. The experience gained from managing the exit from the Great Financial Crisis in the last decade is more than likely to give the Fed context from which to move ahead successfully.

In our view the greater risk lies on Capitol Hill where politics tends to complicate and obfuscate the need for negotiation and the ability to arrive at bipartisan resolutions for problems that slow the process leading to a sustainable economic recovery.

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.

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