Market Strategy 6/13/2022
- June 13, 2022
Too Much, Too Little, But Likely Not Too Late
An uptick in Friday’s inflation data sent stocks lower on extreme negative sentiment
- Last week’s CPI inflation data spooked markets stateside and across the globe as US inflation reached yet another 40-year high. Investors will be focused on the Fed’s FOMC meeting to gauge the central bank’s level of concern about persistent inflation.
- Volatility in the markets is not likely to ebb until market participants can see positive effects from the Fed’s cumulative actions against inflation.
- Last week saw the US dollar surge against ten US trading partner currencies to stand near its highest levels of 2022.
- The 10-year Treasury yield ended last week at its highest level since 2018 as the bond market remains concerned about inflation. The yield is now about twice the level that it began the year.
The week ended last Friday saw a broad decline in stocks stateside and around the world. Emotions ran high across financial news networks as breathless recounting and commentary took place and even arguments broke out among some bulls and bears in what is normally a fairly civil landscape in “market-day prime time slots”.
At the center of last week’s drama (and what could remain at the center of any forthcoming turbulence) is the awful stickiness of high levels of inflation in the aftermath of a pandemic that at its peak pressure points caused monetary policy makers to force massive levels of liquidity into economic systems and politicians to flood the economic landscape (and their respective constituencies) with massive levels of fiscal policy support.
In essence, the US economy and a large part of the developed and even some of the emerging markets were flooded with liquidity in size, momentum and period of time. The torrent of liquidity dwarfed that issued during the Great Financial Crisis of 2007 and 2008 and reminded of the liquidity that is brought out in times of war.
In our view the stock market looks broadly oversold though with sentiment as dark as it turned last week the expression, “we may not be out of the woods yet” may likely still apply for now.
Considering where we were as a global community in April of 2020 it is difficult to fault the intent and the actions taken by the Federal Reserve and even those taken by the political community (which is not oft known for it its ability to spend taxpayer’s money frugally).
COVID-19 itself was oversized in its destruction compared with SARs, Ebola or Zika. The risk at hand in those days spread beyond that related to the health of the populace of the globe but as well to the risks it presented in how it might damage the global economy. The risk of a deep recession or even depression was not unreasonable consideration for those encumbered with decisions as to what needed to be done.
Some two and a half years later the effects of what came to pass during the reign of the pandemic stateside and elsewhere around the world is being felt, and felt in size. Vaccines of great efficacy have evidently stemmed the spread of COVID-19 and its variants allowing a process of serial economic re-openings (and some re-closures followed by further re-openings around the world).
While the memories of COVID-19 and the realization of the risks its variants pose remain fresh in many places, life has begun to resemble in some part what it was pre-pandemic. Demand has outstripped supply of goods and services and taxed the ability of the world economy to function without untoward levels of disruption.
And so for now global supply chain dysfunction and persistent high levels of inflation remain challenges for monetary policy makers, government officials, businesses, consumers and markets around the world to sort and navigate.
With all this already no easy task the Russian intrusion into Ukraine and China’s zero tolerance policy to outbreaks of COVID variants within its borders further compound the economic challenges faced by billions of businesses and individuals on a day to day basis.
Ahead of last week’s CPI (inflation) numbers stateside there were a few “great expectations” from some folks in the corners of the market thinking that the inflation number might have shown signs of enough improvement to relax a little but mostly expectations were for a number that would still be high and unacceptable but at least not worse than the prior inflation high.
We all know what happened. The inflation number came in worse than expected. Bears, skeptics, nervous investors and those prone to negative projection of outcomes of any change in monetary policy found another catalyst to sell “without FOMO” (fear of missing out).
By the end of last week the S&P 500 was just some 0.002% above the low it had reached in May.
In our view, the stock market looks broadly oversold though with sentiment as dark as it turned last week the expression, “we may not be out of the woods yet” may likely still apply for now.
It appears simply too early to expect the actions taken thus far by the Federal Reserve to have had much or even any effect on the high levels of inflation that hold the consumer, business and the markets hostage. With just two hikes (April and May) thus far (amounting to 75 basis points 25 in April and 50 in May) this week’s rate decision and likely more than a few rate decisions beyond that are likely needed to address what ails and threatens affordability of day to day life in 2022.
In what we believe may still be a secular bull market driven by longer-term trends empowered by advances in technology that have already dramatically changed our lives over the past decade and appear poised in the wings with more to follow--this week will find investors focused on the outcome of the Federal Reserve’s FOMC meeting announcement on Wednesday at 2pm. Keep the faith.
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.
Strategist Certification - The author certifies that this investment strategy report accurately states his/her personal views about the subject securities, which are reflected in the substance of this investment report. The author certifies that no part of his/her compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this investment strategy report.
The strategy provided in this report is provided by Oppenheimer Asset Management Inc., (“OAM”) a registered investment adviser affiliate of Oppenheimer & Co. Inc. (“OPCO”). It reflects analysis of fundamental, macroeconomic and quantitative data to provide investment analysis with respect to U.S. securities markets. The overview in this report is provided for informational purposes and does not constitute an offer to sell, a solicitation to buy, or a recommendation for any security or investment advisory services. The report is not intended to provide personal investment advice. The investments discussed in this report may not be suitable for all investors. Investors should use the analysis provided by this report as one input into formulating an investment opinion and should consult with their Financial Advisor. Additional inputs should include, but are not limited to, the review of other strategy reports generated by OAM, its affiliates, and looking at alternate analyses. Securities and other financial instruments that may be discussed in this report or recommended or sold by OPCO or OAM are not insured by the Federal Deposit Insurance Corporation and are not deposits or obligations of any insured depository institution. Investments involve numerous risks including market risk, counterparty default risk and liquidity risk. Securities and other financial investments at times may be difficult to value or sell. The value of financial instruments may fluctuate, and investors may lose their entire principal investment.
Strategist Certification - The author certifies that this strategy report accurately states his/her personal views about the subject matter reflected in the substance of this report. The author certifies that no part of his/her compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this strategy report.
Potential Conflicts of Interest: Strategic analysts employed by OAM are compensated from revenues generated by the firm. The strategists authoring this piece also contribute to an OAM managed portfolio product that relies on and trades on the information contained herein. The managed portfolio strategy trades frequently, both ahead of and after the publication of this report. OAM generally prohibits any analyst and any member of his or her household from executing trades in the securities of a company that such analyst covers. Additionally, OAM generally prohibits any analyst from serving as an officer, director or advisory board member of a company that such analyst covers. In addition to 1% (or more) ownership positions in covered companies that are required to be specifically disclosed in this report, OPCO may have a long positon of less than 1% or a short position or deals as principal in the securities discussed herein, related securities or in options, futures or other derivative instruments based thereon and makes a market in the securities discussed herein. Recipients of this report are advised that any or all of the foregoing arrangements, as well as more specific disclosures set forth below, may at times give rise to potential conflicts of interest.
Third Party Research Disclosure OAM has a research sharing agreement with OPCO pursuant to which OPCO provides OAM Strategy thought pieces to its institutional and retail customers. OPCO does not guarantee that the information in OAM Strategy reports is accurate, complete or timely, nor does OPCO make any warranties with regard to the strategy product or the results obtained from its use. OPCO has no control over or input with respect to opinions found in OAM strategy pieces. OAM is a registered investment adviser affiliate of OPCO.
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. 2022.