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02/05/2024 Market Strategy

  • John Stoltzfus
  • February 5, 2024

The Message Remains the Same

We were reminded last week of Led Zeppelin’s “The Song Remains the Same”

Key Takeaways

  • With 230 or 46% of the firms in the S&P 500 index having reported, results have been mixed but generally stronger than expected. At this near-midway point, earnings are up 4% from a year earlier on 3.4% revenue growth. Prior to the season’s start, a bottoms-up analysis put expected growth at 1.3% YoY.
  • A relatively light calendar of economic data and earnings results this week will likely focus investors on earnings reports, company guidance, and comments from Fed officials in events around the country this week.
  • Last week’s economic data showed a sharp uptick in consumer confidence and continued resilience in the labor market.
  • The S&P 500 is up 4% in 2024 through Groundhog Day, with seven sectors posting positive returns. In our view this shows a broadening in the rally that Oct. 27 of last year.
abstract financials

No matter how many times Fed Chair Powell repeats the central bank’s rationale for why interest rate cuts this year are not likely to come as often (or as soon) as some market participants expect (as indicated in the Fed Funds futures pricing), resistance to the message persists.

That said, it’s not uncommon for the Fed’s policy in rate hike cycles when they are raising rates to curb inflation or in times when the Fed is adding liquidity to the system to boost a flagging economy (or an economy in recession) that its detractors will say “the Fed will fail,” or “the Fed is bound to break something” or “the Fed is pushing on a string.”

Ironically history indicates in our experience that the Federal Reserve’s policy over the course of the last forty-some years has actually been proven effective at stimulating the economy when it’s been at risk of slowing and remedying periods of higher than acceptable inflation when inflation has threatened the stability of the economy. It has also provided liquidity in major crisis --- the most recent being the pandemic and just before that the Great Financial Crisis of 2007-2009.

Quotation from Aenean Pretium

Our expectations remain for the Fed to remain watchful for data that could justify a rate cut when it can feel the time is right.

The US economy persists to be the largest in the world, the dollar remains the reserve of currency of the globe, and the US economy continues to attract folks from countries all around the world to emigrate here, study here, and invest here --- whether in direct investments or via financial markets.

This is not intended as a jingoistic message but rather a strategist’s observation that the Federal Reserve under five chairs with distinctly different personalities and styles (Paul Volcker, Allen Greenspan, Ben Bernanke, Janet Yellen and now Jerome Powell) has managed via its mandate of shepherding economic stability and what’s known as “full employment” (unemployment somewhere in a range of 3-4% to account for job changes, quits, etc. that are normal) to do its job remarkably well considering the challenges it has had to meet.

The current rate hike cycle that began in March, 2022 has seen the Fed raise rates a total of eleven times and paused or left rates unchanged five times. It has taken its bench mark rate from a band of 0% -0.25% to the current level of 5.25% -5.50%.

So far the Fed this cycle has achieved to slow the pace of inflation and move effectively towards its 2% target inflation rate without pushing the economy into a recession.

Time will tell how the current cycle will conclude. For now the Fed has produced a policy regime that continues to allow business, the consumer, and labor (think jobs growth) to remain remarkably resilient.

Resilience remains the operative word in our view and something economic data and corporate earnings results have managed to show so far.

Our expectations remain for the Fed to remain watchful for data that could justify a rate cut when it can feel the time is right. We expect it will most likely do such in the second half of the year (and perhaps as late as the fourth quarter) and at that with just two cuts.

We remain positive on equities and continue to find fixed income as a complimentary asset class for diversification purposes

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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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