Asset Management
01/22/2024 Market Strategy
January 22, 2024
Break on Through to the Other Side
The S&P 500 closed at a new record high on Friday, 464 days after its previous peak
Key Takeaways
- A strong rally on Friday took the S&P500 0.9% above its previous all-time high recorded on Jan. 3, 2022.
- We’ve updated our maximum drawdowns tables to reflect the recovery in the index from its 25.4% decline that began on Jan. 3, 2022. We also show that the recovery took 464 days, which is slightly longer than the 444 day average for recoveries in the 1998-2023 period.
- With just 52 or 10% of firms in the S&P 500 having reported, it’s still too early to reach any definitive conclusions but results show six sectors thus far showing profits rising from a year earlier and three showing double-digit growth.
- Last week’s economic data showed a resilient US consumer, as retail sales surprised to the upside while the University of Michigan survey showed a sharp jump in consumer sentiment in January.
The S&P 500 starts the week at a new record high having broken through resistance to close above its January 3, 2022 peak level last Friday.
The broad market’s new record high took two years, 19 days to be reached with the market climbing a wall of worry and hurdles that included the process of a Fed funds hike cycle that had to be waged against inflation that had reached 40-yearhigh levels; a ramp up in geopolitical risk that spread across the globe; and persistent worries and doubt by many as to how capable businesses, consumers, and employment would be in navigating it all.
In our view “so far so good” is what the economic data stateside is saying. While the economy has indeed shown some slowing in the face of the rate hike cycle it nonetheless has remained resilient. In our view the Fed has been remarkably sensitive in how it has applied its mandate in battling inflation. The central bank has been able to raise rates since March 2022 without pushing the economy into recession (so far).
Last week’s economic data showed better than expected retail sales, a further decline in initial jobless claims, and a surge in January consumer sentiment. Data also showed softness in existing home sales as mortgage rates remain high enough and inventory of homes for sale low enough to keep some prospective sellers and buyers on the sidelines for now.
In our view the weakness that had been felt in the markets early in this New Year represents a mix of profit taking, rebalancing, and rotation...
M&A activity is picking up across a number of sectors including health care, energy and technology adding to evidence that things are indeed getting better.
Q4 earnings season is underway
Though it is still too early in the season to tell how it will end up, company results are so far showing enough strength for us to find: six sectors showing positive earnings growth; three sectors of the six showing double digit earnings growth (consumer discretionary, materials and health care); and three sectors (financials, consumer staples, information technology) posting negative earnings growth. Two sectors (communications services and utilities) have yet to have a company report.
This week has widely followed names in health care, consumer discretionary, consumer staples, information technology and communications services scheduled to report with the potential to shape sector and broad index performance.
A busy calendar of economic data this week will provide investors with further insight as to the Fed’s progress in curbing the pace of inflation. Other data on housing, personal spending, retail inventories and a broad read of the manufacturing and services sectors of the economy that could influence the direction of both the bond and stock markets this week.
In our view the weakness that had been felt in the markets early in this New Year represents a mix of profit taking, rebalancing, and rotation with traders and investors testing the waters as to which asset classes, market capitalizations and styles will prove best as the year unfolds.
Market participants are also likely to look beyond this week to next week’s FOMC meeting and the Fed’s rate decision and commentaries on January 31.
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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