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Market Strategy 7/26/2021

  • John Stoltzfus
  • July 26, 2021

A Time for Equities

With bond yields this low and fundamentals improving stocks appear to have no competition
Key Takeaways
  • With nearly a quarter of companies in the S&P 500 having reported earnings growth for Q2 is up 119% on revenue growth of 17.9% with the materials and financials sectors driving results. Results across the sectors are being driven by favorable comps to Q2:2020.
  • This week earnings season gathers momentum with 183 companies scheduled to report across a diverse group of sectors, including information technology, consumer discretionary, industrials, staples and health care.
  • Earnings projections are rising strongly consistent with past economic recoveries albeit with outsized performance on a comparable basis. 
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Stocks last week again confounded bears and skeptics of the bull market that emerged from the low of March 2020 as they powerfully rallied from a decline last Monday that had been preceded by several days of losses in the prior week. The rally that ensued from last Tuesday through Friday’s market close took the Dow Jones Industrial Average, the S&P 500 and the NASDAQ Composite indexes to new record highs. The three averages respectively advanced last week 1.08%, 1.96% and 2.84%. In addition, the S&P 400 (mid-caps), the S&P 600 (small-caps) and the Russell 2000 (small-caps) respectively advanced 2.13%, 1.62% and 2.15% in the week.

Notwithstanding mounting concerns about wage increases, inflation risks, supply chain disruptions and rising variant-fueled cases of Covid-19, stocks suggested that even with plenty to worry about things related to the economy are actually continuing to improve and signaling better things to come. The yield on the 10-year US Treasury after falling some 24.6% (from 1.63% on June 3 to 1.19% on July 19) stabilized—lessening fears that the bond market is signaling an economic downturn ahead.

Stocks at least in part took this as a cue to regain their composure and proceeded to climb the proverbial “Wall of Worry” on a Q2 earnings season that not only has thus far succeeded in surprising to the upside but has also provided enough positive commentary from management teams to boost traders’ and investors’ sentiment towards owning stocks.

Quotation from Aenean Pretium

Pull backs in bull markets are not uncommon and indeed are healthy for the market.

However, in our view beyond the daily activity in the equity market and corporate news of the day there lies an increased appetite for equities from individuals and institutions (those whose mandates permit them to own equities) for broader exposure to stocks that’s driven less by enthusiasm, excitement, or greed but rather by the need to find investment vehicles that can offer a potential to meet goals and objectives that simply cannot be provided by fixed income instruments with interest rates as low as they are today---or as low as they have been over the course of the past decade and as low as they may remain over the next few years if not longer.

Whether it’s a goal of saving for a child’s college education, an individual’s retirement or a pension plan fiduciary’s goal to meet the needs of the constituency they serve the fixed income coupons (yields) of the present period do not offer much unless things get a whole lot worse than they currently are and bond values rise as yields fall lower.

In our view globalization, regionalization and technology over the course of the past 30 years and over an even longer period of time have grown to create a competitive landscape for business, labor and commodities that has been counter-inflationary. This is likely to remain the case even as the impediments to global supply chains as well as super-sized stimulation by fiscal and monetary policy in meeting the current pandemic are removed.

We’re not saying “trees grow to the sky” or that market pullbacks on catalysts that justify bears, skeptics and nervous investors taking some profits without FOMO (fear of missing out) won’t happen. Pull backs in bull markets are not uncommon and indeed are healthy for the market.

That said the current period with yields in broad segments of fixed income across much of the globe negative on either real or nominal basis has produced “a time for equities” like no other that we have seen since we joined the Wall Street workforce nearly four decades ago.

Know what you own and why you own it and have rightsized expectations as to how what investments you own will perform in different environments (including the current highly transitional environment from pandemic crisis to post pandemic recovery)—along with a practice of patience in our view remain key to investment performance.

In the week ahead activity will pick up further in Q2 earnings season for the S&P 500 with companies in a broad array of sectors including information technology scheduled to release results. In the middle of the week the FOMC meeting will conclude with the Federal Reserve’s policy statement and the Q&A with the Fed Chair.

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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