Asset Management
05/01/2023 Market Strategy
May 01, 2023
Let’s Make a Deal
The House of Representatives makes an offer on the debt ceiling… let the negotiations begin
Key Takeaways
- With 265 or 53% of the firms in the S&P 500 index having reported first-quarter earnings, those firms have reported profits 1.7% lower than a year ago despite revenue growth of 4%. Another 162 firms are scheduled to report this week.
- Thus far the strongest results have been reported by firms in the industrials and energy sectors. At this point in the reporting season some 80% of companies that have reported have beaten analyst estimates.
- The broad market rose 0.9% last week as a mix of growth and value, cyclical and defensive sectors led the broad market higher.
- While Fed’s preferred inflation gauge slid a tenth in March to 4.6% YoY from 5.1% in the prior month, it remains well above the Fed’s 2% target. Meanwhile its month to month growth of 0.3% from February suggests it’s still running at 3.6% or so annualized, which is still well above the Fed’s target.
Stocks stateside managed to move broadly higher last week on economic data and S&P 500 Q1 earnings results that remained varied but with enough positive items in the mix to offset uncertainties to a degree good enough to have kept the bears at bay.
This week will provide a host of key economic data (including payroll numbers on Friday), earnings results (throughout the week) and a Fed rate decision that could well provide useful clues as to the direction the markets are likely to take in the early part of May.
Economic data released last week served to remind market participants and economists that while the Federal Reserve has indeed had significant progress in slowing the rate of inflation stateside its pace and stickiness remain at levels that are not likely to cause the central bank to pause as soon as some investors would like to see.
Over the course of last week stocks fluctuated in response to earnings released by S&P 500 companies with the major large cap benchmarks posting gains for the week ended last Friday.
We expect the Fed to raise its benchmark rate this week by a quarter point (0.25%) which will place the rate in a range of 5% to 5.25%.
The Dow Jones Industrial Average, the S&P 500, and the NASDAQ Composite (some 40% weighted in technology and tech related stocks) respectively advanced 0.86%, 0.87% and 1.28% last week.
Mid-cap stocks moved lower on the week with the S&P 400 (mid-caps) slipping 0.34% while the S&P 600 (smallcaps) and the Russell 2000 (small-caps) respectively losing 1.03% and 1.26%.
From a performance perspective from the broad market low on October 12th of last year: the Dow Jones Industrial Average, the S&P 500, the S&P 400, the S&P 600, the Russell 2000 and the NASDAQ Composite are up respectively: 16.73%, 16.56%, 10.54%, 5.42%, 4.81% and 17.37%.
From a performance perspective on a year to date basis: the Dow Jones Industrial Average, the S&P 500, the S&P 400, the Russell 2000 and the NASDAQ Composite are up respectively: 2.87%, 8.59%, 2.47%, 0.88% and 17.13%. In the same period the S&P 600 is off 0.88% with that small cap index and the Russell 2000 index likely reflecting concerns tied to the crisis that emerged among some of the regional banks in early March.
In the week ahead 162 companies of the S&P 500 will release Q1 results. Thus far this reporting season earnings with 53% (265) of the benchmark’s 500 companies having reported earnings are off 1.7% on back of 4% revenue growth. Five sectors thus far have delivered positive earnings results with energy, industrials, consumer discretionary leading the other sectors with respective earnings growth of 26.87%, 25.54% and 9.14%.
Focus on the Fed
We expect the Fed to raise its benchmark rate this week by a quarter point (0.25%) which will place the rate in a range of 5% to 5.25%. The resilience of the consumer and business reflected in economic data so far this year in our view suggest the Fed is likely to raise at least one more time this year. With nine hikes since it began to raise rates last year the economy has shown signs of slowing while still remaining remarkably resilient particularly across the service segments of the economy.
Taking into account the usual lagging effect of Federal Reserve rate hikes on the economy it looks to us like the Fed might be able avoid a hard landing this cycle if not a bumpy landing. The knock off effects on the economy and inflation from the crisis of confidence in the regional banks likely could serve the Fed well in avoiding their having to exert even more pressure on the brake pedal.
For now the risk of not negotiating a suitable resolution to the debt ceiling would seem like what will be the market’s bigger worry near term.
Name:
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.
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