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Market Strategy 7/25/2022

  • John Stoltzfus
  • July 25, 2022

Should I Stay or Should I Go?

Everyone wants to know if we’ve seen the bottom already

Key Takeaways

  • Q2 earnings season takes center stage throughout the week as 177 companies report results. Thus far 72% of firms that have reported have surprised to the upside.
  • The focal point of the week will be the outcome of the Federal Reserve’s FOMC meeting and the size of its rate hike.
  • We look under the hood at the S&P 500’s upturn since June 16 and consider whether recent sector performance is giving us an indication of where the broader market wants to go.
  • Last week’s economic data showed a deterioration in the Conference Board’s leading economic indicator suggesting that the US economy is likely already slowing, which may alleviate pressure on the Fed over the medium term. 
bull vs bear image

Stocks and bonds and other asset classes have bounced between gains and losses of late as bulls and bears sort out economic data, Q2 earnings results and any forward guidance given in earnings calls from day to day.

Recession worries stateside persist and weigh on markets for the near future as the Federal Reserve moves forward to stem inflation while trying to avoid a hard landing that could lead to a recession.

Opinions remain mixed among market participants, economists and commentators as to how successful or not the Fed will be in achieving its goals. We have found over nearly 40 years in the markets that such a mix of opinion is not uncommon to Fed Funds hike cycles (as well as in accommodation cycles) as respective levels of uncertainty around such changes and adjustments in policy offer opportunity for players and investors to take sides in trades day to day.

In our view we’re already experiencing a bumpy landing considering levels of economic slowing, the stickiness of 40-year high inflation and sagging consumer and business sentiment. If the current process is seen as analogous to a commercial jet landing then we’d say that we’re already experiencing a bumpy landing process as we’ve come down from almost 4800 S&P 500 points on January 3, 2022 to around 3,962 (at last Friday’s close) while experiencing some notable turbulence. Looks to us like “stay seated and fasten seat belts with more turbulence possibly ahead” but not likely a hard landing (with emergency vehicles on the runway).

Quotation from Aenean Pretium

In our view the Fed so far is doing the job that needs to be done while showing sensitivity to the near-term effects to the economy of its change in policy.

In the process of all the pondering and sorting of information by market participants over the course of the past month or so the S&P 500 has managed to post a rally of some significance (up 8%) from its low on June 16th through last Friday’s close. Whether it’s a rally from an established bottom by the market or a “bear market rally,” there’s fodder for argument between bulls and bears in any given moment in day to day market action.

Is the worst over or “here comes the sun?”

From our perch on the market radar screen we’d think a glance at recent sector performance at least shows where the market wants to go whenever it breaks free from the bear grip that took it hostage for most of the first half of this year.

Based on the market’s sector performances from June 16 through last Friday (shown below) the stock market is showing favor near term for a mix of growth, cyclical and defensive stocks with the leading sectors being consumer discretionary, information technology, real estate and health care each of which have respectively outperformed the underlying benchmark and the other seven sectors.

Anatomy of a summer rally

It’s worth noting that the only sector posting a negative return in the period of the recent rally is energy which ironically is the only one of the S&P 500’s 11 sectors posting a positive return in the year to date period. So, perhaps “the times they are a changing” if not fast enough for some of us.

Major slate of corporate reports and the Fed this week

In the week ahead investors will have plenty to peruse and ponder with 177 companies in the S&P 500 reporting second quarter results throughout the week along with the outcome of the Federal Reserve’s FOMC meeting on Wednesday at 2pm (Eastern Daylight Time). Expectations as of the end of last week were for a hike in the benchmark Fed Funds rate of 75 basis points (0.75%) with less of a chance of a hike of 100 basis points (1.00%).

Our view remains positive on the actions taken so far by the Federal Reserve since it pivoted in the fourth quarter of last year. We believe actions by the Fed leading to what we call “the end of free money” to be a good thing for investors and the US economy. Too much liquidity in the system feeds speculation, overinvestment and distortion of valuations and expectations.

In our view, the Fed so far is doing the job that needs to be done while showing sensitivity to the near-term effects to the economy of its change in policy. Progress not perfection remains the order of the day in our view.

John Stoltzfus headshot

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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