Asset Management
12/18/2023 Market Strategy
December 18, 2023
Into the New Normal
Economic data and Fed policy reflect progress that should support stocks in the New Year
Key Takeaways
- From the rally that began in late October through last Friday, the S&P 500 is up 14.8% in a broad-based rally that has included 10 of the 11 sectors.
- The Dow Jones Industrial Average closed on Friday at a new, all-time record high at 37,305. The S&P 500 is about 1.6% below its prior all-time high set on Jan. 3, 2022. The Nasdaq Composite index is 8.4% below its prior all-time high on Nov. 19, 2021.
- Last week’s economic data showed progress in the Fed’s efforts in curbing inflation while showing a rebound in retail sales in November that suggest a strong start to the holiday sales season.
- The S&P 500 forward earnings multiple ended the week trading at 19.4x the next twelve months earnings estimate; that’s 1.6% above its five-year average forward multiple and 18.8% below its five-year high of 23.9x in 2020.
As 2023 nears a close, stocks and bond prices stateside have risen to levels well above the expectations of most bulls and those of the bears, skeptics, and the permanently nervous that were in place at the start of this year.
Over the course of last week the Dow Jones Industrial Average, the S&P 500, and NASDAQ Composite respectively posted their highest closing price levels for 2023 (with the Dow posting its highest ever, record close) on back of what has been termed a “turbo charged” rally from the start of November through the second week of December.
A compendium of comments from officials at the Federal Reserve along with positive economic data and better than expected results in the S&P 500’s Q3 earnings season along with a continuation of bear capitulations has made a case that indeed enough things might be getting better to offset the degree of uncertainty that remains ever present in risks on the proverbial global landscape.
This week a substantial brace of economic data related to housing, manufacturing and services activity, stateside GDP, personal spending, and sentiment will add color for investors to ponder as to what direction the markets will take in the weeks that remain this year and in the year about to begin.
With prospects for a soft landing having gained support over the last half of the year and with prior widespread expectations for recession recently being compared with “Waiting for Godot,” sentiment towards risk assets has certainly improved.
In our view the progress that’s been made by the Federal Reserve in curbing inflation as well as the resilience exhibited by corporate entities and the consumer are likely to persist notwithstanding some slowing in the pace of growth stateside as any lag effects of the Fed’s eleven rate hikes and four “skips” since March of last year are digested.
The good news is that while the Fed remains vigilant against untoward levels of inflation and committed to its 2% inflation target it also appears to remain quite willing to maintain the sensitivity it has shown this Fed funds hike cycle with regard to the effect of its deploying the rigors of its mandate on the stateside economy.
With prospects for a soft landing having gained support over the last half of the year and with prior widespread expectations for recession recently being compared with “Waiting for Godot” sentiment towards risk assets has certainly improved.
For now we’ll keep the party hats in the box and remain on the lookout for any “babies that get thrown out with the bath water” (quality stocks) in market downdrafts. Dividend growth stocks and “growthier” value stocks along with “garp growth” stocks are in our view likely to continue to regain investors’ attention particularly as the Fed funds hike cycles moves closer to a close.
The end of free money has so far been shown to be a good thing with the potential of traditional diversification across asset classes a practical choice for a broad group of investor objectives and tolerances.
We remain positive on equities on expectations that fundamentals in the broad economic and corporate and consumer realm are likely to persist improving if not without challenges along the way.
With the global economy still on the mend and geopolitical risk remaining at elevated levels we’ll keep emphasis on quality and our expectations right-sized across asset classes and regions of the world.
The Market Strategy Radar Screen will resume publication in the New Year on January 2nd. We wish our readers all the best for the holidays and for the New Year.
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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