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Market Strategy 11/14/2022

  • John Stoltzfus
  • November 14, 2022

The Shape of Things to Come?

Despite last week’s good inflation news, investors should right-size expectations as an overhang of uncertainty remains in place

Key Takeaways

  • With 92% of the S&P500’s companies having reported Q3 results, earnings are up 3.9% on the back of 12.2% revenue growth.
  • Of the 11 sectors, three have reported double-digit earnings growth, one has reported triple-digit earnings growth, and five have reported negative earnings growth. All 11 sectors have reported positive revenue growth thus far this season.
  • A better-than-expected core CPI number last week propelled equities higher in a mid-term election rally. Economic data, a weaker dollar, and a slippage in the price of oil also contributed to the rally.
  • Considerable uncertainty that remains on the landscape could test the current rally in the weeks ahead. 
abstract financials

Investors and traders will have much to ponder when the dust settles on final midterm election results as well as when considering how much to rely on what was the first sign from economic data (CPI data released last week) that some real progress has been made by the Fed in its efforts to curb levels of untoward inflation.

The mid-term election results (as known through this weekend) appear to be clear enough to say that what was expected to be a red tide turned out to be a red trickle in many of the contests across the nation. As strategists we’ll leave it to the political pundits to argue what caused the election results to once again put in question the effectiveness of pollsters and other prognosticators at divining the results.

As market strategists in our view the substance that drove an eye-catching rally for stocks and bonds last week was comprised of a mixed bag of factors that included: a positive surprise (if modest) in the decline in the core CPI inflation rate; a decline in month and year-over-year hourly wage growth stateside; a traditional (if outsized) mid-term election rally in which market participants showed relief that the market has a clearer idea of what to expect as a result of the election outcome and some signs that efforts by the Fed may indeed not be in vain in curtailing inflation; short covering by bears who were taken by surprise by the CPI number and some slowing in month over month and year over year hourly wage growth which ignited the markets’ broad upside move; news from China that at least some COVID restrictions could likely be loosened soon and other news suggesting that China might become more business-friendly as well as provide some relief in addressing that country’s real estate sector problems.

Quotation from Aenean Pretium

The markets have shown in interim rallies over the course of this very tough year where they want to go as the impediments to their progress in climbing the proverbial wall of worry become surmountable.

Not out of the Woods Yet

For the week ended last Friday the Dow Jones Industrial Average, the S&P 500, the S&P 400 (mid-caps), the S&P 600 (small caps), the Russell 2000 (small-caps) and the NASDAQ Composite (some 40% weighted in information technology and tech related stocks) closed respectively higher: 4.15%, 5.9%, 5.25%, 5.19%, 4.6% and 8.10%.

Notwithstanding last week’s rally those same indices on a year to date basis remain respectively negative: -7.13%, -16.22%, -10.9%, -12.09%, -16.15% and -27.62% in our view suggesting that there’s plenty of upside that needs to find a catalyst (or catalysts) to get back to where these indices were at the start of the year.

While we are prone to not look a gift horse in the mouth we won’t count our chickens before they hatch midst a Fed Funds hike cycle. That said, in our view the markets have shown in interim rallies over the course of this very tough year where they want to go as the impediments to their progress in climbing the proverbial wall of worry become surmountable. (See this week’s S&P 500 sector performance and this week’s global indices performance on pages 8 and 9 of this report)

The rally in bonds, which took the yield on the US ten-year treasury down 8.32% to close the week at 3.81%, (down from 4.16% the week before) has fallen even more from its high of this year reached on October 24 (4.24%) suggesting that bond market participants have taken the lead in sensing that the Fed was likely on track towards putting a crimp into the pace of inflation.

We’ll look for more to be revealed. For now we’d expect any catalyst of worry that appears on the horizon to give bears, skeptics and nervous investors a chance to engage in a spate of selling without FOMO (fear of missing out) and provide a governor of sorts to curb investor enthusiasm and keep markets from getting frothy.

We’ll keep focused on economic data that points to further progress if not perfection in the Fed’s efforts to put inflation in check as well as the price of commodities—particularly oil. West Texas Intermediate (WTI) closed at $88.96 last Friday off some 3.94% from its close the week prior. Oil has dropped some 28.1% from its peak of $123.70 on March 8 of this year but as of last Friday remained 18.3% higher from where it started the year at $75.21 per bbl. Oil remains a core inflation feeder in the US and global economy

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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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