Market Strategy 1/10/2022
What, Me Worry?
Last week’s equity market declines on inflation worries likely created buying opportunities for those looking for the “babies thrown out with the bathwater.”
Key Takeaways
- Q4 earnings season unofficially starts on Friday this week when the first of the big banks begin to report results. According to FactSet earning growth is expected to reach 21.7% year-on-year, which would mark the fourth straight quarter of growth in excess of 20%.
- Fed Chair Jerome Powell’s confirmation hearing begins on Tuesday when he meets with the Senate Banking Committee.
- Last week saw a pullback in US equity markets stemming from a combination of inflation fears and concerns that the Fed will be more aggressive than initially thought. In addition, worries remain about the impact of the Omicron variant on economic reopening stateside.
- That said, economic data released last week from the ISM survey and the nonfarm payroll report suggest that businesses and consumers are navigating the variant in stride.
After ending 2021 with a Santa Claus rally stocks stumbled in the first week of the new year as the release of the Federal Reserve’s FOMC December meeting minutes provided a more detailed view of what had been said in last month’s meeting. This provided a picture of a central bank somewhat more hawkish than the Fed Chair’s comments had signaled when exiting the meeting last month.
Prospects for faster-than-anticipated US interest-rate increases caused the S&P 500 and the NASDAQ Composite (over 40% weighted in tech or tech related names) to suffer respective downdrafts of 1.87% and 4.53% on the week ended last Friday. The declines generated much breathless commentary and excitement last week from the bear camp among investors who just last year had experienced great consternation as those same aforementioned indices respectively advanced 26.89% and 21.39% notwithstanding uncertainties and challenges present throughout 2021
The Dow Jones Industrial Average with just 30 stocks that offer significant exposure to large cap value vs. large cap growth stocks last week slipped just 0.29%. The S&P 400 (mid-caps) and the S&P 600 with notable exposure to a mix of value and growth stocks respectively shed 1.72% and 1.23% on the week
The COVID Virus Remains a Concern
As we prepared to go to press with this week’s commentary, markets in Asia were starting the week mixed as investors pondered more stock and bondmarket volatility as markets open into the second week of trading in 2022. Along with concerns about inflation and prospects for increased vigilance by central banks around the world investors continue to weigh what the impact of the latest variants of COVID-19 will be on economic re-openings stateside and elsewhere.
But Earnings Will Regain Focus on Friday
On Friday Q4 earnings season for the S&P 500 unofficially gets under way as the big US banks begin to report results. With the financial sector expected to find tailwinds from a likely steepening yield curve over the course of this year investors will be eager to see big bank results for the quarter just ended to gauge which industry leaders within the sector stand to outperform their peers in the months ahead.
Last week saw US Treasury yields move higher across the board as bond prices fell after the release of the Fed’s minutes from its December meeting. The yield on the US 10-year Treasury note jumped 25 bps (to 1.764% from 1.512% at the prior week’s close) rising over 16.6% over the course of the week to its highest level in almost two years.
The Week Ahead
This week will likely find investors focused on a number of key economic data including the CPI, the core CPI (exfood and energy), the PPI and the core PPI, major gauges of consumer and small business sentiment along with the release of the Federal Reserve’s Beige Book which provides insight to the state of the economy from a perspective of the communities served by the Fed’s regional bank branches throughout the country.
Fed Chair Jerome Powell’s confirmation hearing on the Senate Banking Committee’s agenda for Tuesday will garner significant attention this week on Capitol Hill, Main Street and on Wall Street. A number of Federal Reserve governors will also be speaking about the economy and monetary policy in a number of meetings around the country.
Economic data crossing the transom last week was mixed with US employers adding fewer jobs than had been expected in December while wages rose more than anticipated and the unemployment rate neared a record low reminiscent of the historic low achieved just prior to the pandemic.
A busy start to the New Year along with somewhat heightened volatility should come as no surprise to investors considering the challenges the US and international economies have been through since the start of the pandemic through today. In such times patience remains a virtue which in our view should serve investors well along with portfolio diversification.
We are reminded that with increased volatility and risk history has shown that often opportunity arise for investors to find “babies that get thrown out with the bathwater.” We suggest that investors know what they own in their portfolios and why they own it as well as maintaining right-sized expectations of how different asset classes are likely to perform in transitional periods coming out of crisis moving towards “the next new normal.”
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.