01/23/2023 Market Strategy
- January 23, 2023
Not Quite “Waiting for Godot”
Stocks find reasons to rally even as the Fed remains committed to raising rates
Key Takeaways
- With only 55 or 11% of the firms in the S&P 500 index having reported Q4 results, it’s too early to say much about trends. For those companies that have reported, earnings are off 4.5% from a year ago on revenue growth of 7.4%.
- Stocks have closed higher on two of the first three weeks of the year as economic data points to the Federal Reserve having achieved some success on dampening inflationary pressures.
- International equity markets outperformed US counterparts last week, benefiting from China’s pivot on its COVID policy and a softening dollar since late September.
- Last week’s economic data showing softening retail sales and a decline in wholesale price inflation further added to the perception that the Fed is on the right track in its efforts to curb inflation.
The debate persists between investors looking for a recession this year and those looking for something better for the economy and the markets on any given day as markets reacting to economic data and earnings announcements keep the argument unresolved.
Of the 13 trading sessions thus far from the start of the year the S&P 500 has closed higher on seven days. On a weekly basis the S&P has closed higher on two of the first three weeks of the year. Last week was the benchmark’s first week to post a weekly loss this year notwithstanding a strong rally on Friday.
Uncertainty around inflation, corporate earnings, the Fed’s monetary policy and the effect of all three of these factors separately and in aggregate on the US economy and markets continues to keep market participants and observers guessing as to the direction the markets will take.
Among the good news that has supported the latest leg of the rally that began last year from a low on October 12 is that stateside economic data and corporate earnings continue to exhibit resilience even as the Federal Reserve’s efforts have begun to show positive effect in dealing with inflation as higher interest rates help take the economy off its pandemic-related “free money sugar high.”
China’s exit from “zero tolerance” policy on COVID-19 has also helped the US and foreign markets in Europe and Asia experience improved sentiment on investor expectations that global economic growth could get a lift from China’s recent policy pivot.
The US dollar’s drop reflects in our view the impact of a thematic of resilience that the stateside economy and corporations have shown.
The US dollar as of last Friday was off 9.5% from its high of last September as measured by the Bloomberg dollar index (a gauge of the dollar’s relative strength against a trade-weighted basket of both developed and emerging currencies). The dollar had stood some 15.3% higher near the end of September from the start of last year. The dollar’s drop reflects in our view the impact of a thematic of resilience that the stateside economy and corporations have shown. The drop in the dollar appears to have served somewhat to offset recession fears that have dogged foreign markets.
As we’d expect there’s no “all clear” signal being sounded over the markets but a “progress if not perfection” thematic appears to have surfaced on the landscape providing support to global equity markets.
As of last Friday’s market close 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% tech or tech related in weight) were respectively higher from the start of the year by 0.69%, 3.47%, 5.27%, 5.69%, 6.02% and 6.44%.
These same indices from the market low on October 12 of last year had moved respectively higher through last Friday’s close 14.26%, 11.06%, 13.57%, 12.33%, 10.64% and 6.94%.
In International markets the MSCI EAFE (developed international markets ex-US and Canada), MSCI Emerging markets and MSCI Frontier markets were up respectively on the year-to-date through last Friday: 7.02%, 8.35% and 4.52% (in USD).
These same indices from October 12 of last year were respectively higher 26.24%, 19.75% and 4.52% as of last Friday with foreign markets broadly benefiting from attractive valuations, China’s recent policy pivot, a decline in the US dollar and improved sentiment likely linked to expectations that the US Federal Reserve may not need to hike rates for as long as some had feared earlier.
This week will provide clues to tell if the equity markets have gotten ahead of themselves or if they’re on track for further upside ahead as 89 companies in the S&P 500, including some of the most widely followed names across a number of key sectors in industrials, financials, materials, communications services, information technology, health care and energy report results (see our Earnings Score Card on page 6 of this report).
Stateside on the political front market participants will focus on any developments positive or negative related to addressing the debt ceiling.
John Stoltzfus
Title: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.
DISCLOSURES
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.