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01/23/2023 Market Strategy

  • John Stoltzfus
  • 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.
world globe

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.

Quotation from Aenean Pretium

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.

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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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