Skip to Main

Market Strategy 9/19/2022

  • John Stoltzfus
  • September 19, 2022

It Don’t Come Easy

Investors’ patience can be put to the test over the course of a Fed hike cycle

Key Takeaways

  • All eyes this week will be focused on the outcome of the Fed’s FOMC rate decision on Wednesday. Expectations are for a 75-basis point hike in light of last week’s uptick in the core CPI.
  • Last week’s drama within the stateside equity markets should serve to remind investors that increased volatility is not beyond the norm in the early stages of a Federal Reserve hike cycle.
  • A look under the hood of last week’s market decline pointed to the symmetry of the selling across the major indexes suggesting algorithmic trading which may have led to stocks being oversold, similar to what occurred in June, near the start of the summer rally.
  • Last week’s economic data showed consumers becoming more optimistic on the longer-term outlook while curbing their inflation expectations. Retail sales in August were also stronger than expected. 
abstract financials diagram

Last week’s stateside equity market declines on a hotter than expected Core CPI number should remind investors that it’s never easy when stocks have to “run the gauntlet” of a Fed Funds hike cycle, particularly in the earlier part of the cycle—and even more so if the Fed is considered to be “behind the curve” or “late to the party in removing the punch bowl of liquidity” to get down to the business of putting untoward levels of inflation in check. With it still too early in the current Fed tightening cycle to have effect and with just four hikes (0.25%, 0.50%, 0.75% and 0.75% respectively in April, May, June and July) under its belt the disappointment felt by the market and the subsequent thrashing given to stocks should come as no surprise.

The headline CPI (Consumer Price Index) number which came in at 8.3% year over year was slightly hotter than expected but lower than the prior month’s number. However, the Core CPI number (ex-food and energy) up 6.3% (from July when it was up 5.9%) was what rattled the market last Tuesday and began stocks’ trek lower in three of last week’s five trading sessions. The decline in oil (aka energy) which is excluded from the core CPI after all was an old story (with gasoline prices off some 26.7% from their peak in June) for traders going into last Tuesday.

Quotation from Aenean Pretium

Looking forward in our view the Fed in this cycle should remain vigilant and active in working to curb inflation with rate hikes likely to continue through at least the first quarter of next year.

It was the “heat” evident in persistent inflation generated by other price index components that evaporated positive sentiment for the balance of the week that helped push stocks lower. Among those hot points were prices for rents and the strength in the jobs market that came with higher wages. These hot points were enough to raise concern about the effectiveness thus far of the Fed’s efforts to curb inflation and send stocks lower.

By the end of the week the Dow Jones Industrial Average, 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 tech and tech related companies) were respectively off on the week: 4.13%, 4.77%, 4.71%, 4.08% and 5.48%. The relative symmetry of the losses suggests algorithmic selling at work as selling begat selling in three of last week’s stateside trading sessions.

We should note that the market appears to be oversold as the forward multiple of the S&P 500 is now back near to where it was before the market hit its low on June 16, prior to its summer rally. We would also note that the 10-year Treasury note yield is also just under its high of 3.48% reached on June 14.

Taken in context of the degree of the Federal Reserve Board’s pivot at the end of last year, their efforts taken since (as well as all the communication in Fed Speak by the Chairman and other Fed officials over the course of this year) and with consideration of historical context of past Fed tightening periods—we are of the view that the equity market’s reaction to the higher than expected core inflation number last week was pretty normal (see page 12 for our Maximum S&P 500 Drawdowns 1971-1989).

We think it’s important to recall that the Fed’s current battle with inflation is likely not quite as daunting a consideration as was that of Paul Volcker’s in 1978 when as chairman of the Fed he faced bringing inflation in check that he’d inherited from a prior Fed Chair who had failed to act in a timely manner and inadvertently let inflation become deeply embedded in the US economy over a period of 10 or 15 years.

In this cycle the Fed and its critics had begun dialogue on inflation early in the game and as recent as last year. In the period of the most recent hike cycle, which occurred from December 2015 through December 2018, dialog between the Fed and market participants was extremely active as well. And therefore the economy and the markets were able to manage expectations of the course of that cycle.

Looking forward in our view the Fed in this cycle should remain vigilant and active in working to curb inflation with rate hikes likely to continue through at least the first quarter of next year.

Drawing on our experience working in the markets through periods of Fed tightening over the course of nearly forty years we’d expect the markets sooner than later to recognize that the end of “free money” (untenably low interest rates) is not a bad thing and soon after that they’ll likely get a sense that the Fed won’t raise rates “forever” but just as long as it takes to curb the inflation that came from overstimulation of the economy over the course of the pandemic by both the Federal Reserve and politicians in Washington.

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.

Hide Bio


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.