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Market Strategy 6/27/2022

  • John Stoltzfus
  • June 27, 2022

A Positive Reversal of Fortune for the Markets

Stocks and bonds both rallied as inflation expectations eased and a well-known Fed official suggested recession fears were overdone

Key Takeaways

  • Stocks and bonds rallied powerfully as economic slowing was read to signal the Fed may not need to tighten (get as aggressive) as some investors have feared.
  • Key commodity prices off from their highs earlier this year likely in part on overdone recession fears, along with the recent downward move in Treasury yields could help stocks recover from the recent broad sell-off that has taken stocks to what appears to be a sizeably oversold condition.
  • The likely addition of former FANG growth stocks to Russell Value indices in the news last week may serve to add legs to the rally that emerged last week.
  • Key to market recovery remains economic data, quality of revenue and earnings in Q2 and any evidence that the Fed is on the right track and “doing the right thing” to put inflation in check in the quarters ahead this year and next.
financial chart graphic

The new week greets investors and traders with plenty to ponder as they measure the power of the rally that broadly lifted stocks globally led by market action in the US last week. Uncertainty remains the order of the day as challenges that include: inflation stateside and around the world remains at worrisome levels; global supply chains (even though somewhat improved) remain dysfunctional; China’s zero-tolerance COVID policy persists and Russia’s incursion into Ukraine festers.

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 (over 40% weighted in technology and tech related companies) respectively rallied last week: 5.39%, 6.45%, 5.13%, 5.22%,6.01% and 7.49%.

On a year to date basis the same indices remain in the red respectively off from the start of the year: 12.4%, 17.32%, 17.23%, 20.9% and 25.51%. As of last week’s close two of these five key indices remained in a bear market (off 20% or more) in the period.

In the international realm the MSCI EAFE index (developed international markets ex-US and Canada), the MSCI Emerging Markets Index, and the MSCI ACWI (All country index ex-US) respectively gained 2.8%, 0.65% and 2.08% while the MSCI Frontier Market index slipped 0.71%

Quotation from Aenean Pretium

As recession worries rose over the course of last year and part of the first half of this year the price of oil and industrial metals prices surged.

On a year to date basis those same international equity indices are off 19.77%, 17.92%, 22.51% and 18.66%. International index returns are shown in US dollars. We note that the US dollar declined on the week ended last Friday some 0.64% as concerns eased somewhat as to how aggressive the Federal Reserve’s might have to be this rate hike cycle.

The source of last week’s rally in stocks and bonds stateside appeared centered to some degree in a level of confidence that emerged to counter recent bearish market participant sentiment as economic data began to show enough evidence of slowing among business and consumer activity to suggest that the Federal Reserve might not have to be as aggressive going forward as some had feared earlier in the week ended and for much of this year.

Providing support to the equity rally was the US Treasury market as the yield on the 10-year Treasury fell to 3.13% (or 4.36% lower from where it had stood on Tuesday, June 21) and the yield on the 5-year Treasury note fell 5.25% from 3.36% on Tuesday to close Last Friday at 3.187%.

Comments by St. Louis Federal Reserve President and CEO James Bullard in a panel discussion hosted by a European bank in Zurich last Friday and reported by the press over the weekend suggested a softening from his earlier hawkishness. The press reported that Bullard said fears of a US recession are overblown with consumers flush with cash saved up during the pandemic, household wealth from gains in home prices and with the US in the early stages of an economic expansion. According to Bloomberg News the prominent regional Federal Reserve President of the St. Louis Federal Reserve did repeat his call for further “front-loading” of rate hikes to contain inflation. Bloomberg News also quoted Bullard as saying in Zurich on Friday, “I actually think we will be fine….It is a little early to have this debate about recession probabilities in the US.”

A number of key commodity prices which had surged earlier this year feeding inflation and raising concerns from Main Street and Wall Street to Washington DC and around the world have moved lower of late. The price of oil (WTI—West Texas intermediate) as of last Friday stood at $104.27 down 15.71% from its March 8th high this year and off 16.26% from its close on June 8.

As recession worries rose over the course of last year and part of the first half of this year the price of oil and industrial metals prices surged. Of late they have pulled back with Industrial metals on track for their worst quarter since the Great Financial Crisis of 2008. Copper, considered a bell weather of economic growth, has fallen into a bear market from record levels just a few months ago. The green metal’s importance in a myriad of things including: construction, industrial equipment, appliances, vehicles, technology and housing rates its pricing as a gauge of sentiment with regard to the economy as well as its practical application in the lives of business and the consumer.

With manufacturing activity having come off the boil and showing signs of further weakening around the world (China, Europe and the US) a number of the key commodities in the commodity complex may well serve to help the Fed “do the job” against inflation without having to resort to aggressive efforts feared by the markets. That could help the Fed skirt or even avoid a recession as it strives to put inflation in check.

For now, things in our view remain in flux as the US transitions out of the pressures wrought by the pandemic and the host of aforementioned challenges that remain on the landscape as it navigates toward a sustainable economic recovery that we expect will lead in time to a global economic recovery and what will likely become “the next new normal”.

Time will tell soon enough.

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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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