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02/12/2024 Market Strategy

  • John Stoltzfus
  • February 12, 2024

Don’t Let the Sound of Your Own Wheels Drive You Crazy

With the S&P 500 at new record highs, investors need to separate the signal from the noise

Key Takeaways

  • With 334 or 67% of the firms in the S&P 500 index having reported, results have been generally stronger than expected. At this point two-thirds through the season, earnings are up 5.2% from a year earlier on 3.9% revenue growth. Prior to the season’s start, a bottoms-up analysis put expected growth at 1.3% YoY.
  • This week brings CPI and PPI inflation reports for January. These will offer the first indication of whether the disinflationary trends in place since last year continued into 2024.
  • The S&P 500 is up 5.4% in 2024 through Feb. 9, with seven sectors posting positive returns. In our view this shows a broadening in the rally that began on Oct. 27 of last year. 
abstract financials

Keeping the age-old adage in mind that “trees don’t grow to the sky,” we think it’s important to keep the party hats in the box for now and take a look under the hood to consider what’s taken the broad market to the current level (5,026.61) attained last week. On Friday the index rose 0.57% to close above the 5,000 level for the first time in its history.

Among the drivers of what has come to pass in market performance we think it’s important to consider: Federal Reserve monetary policy since March 2022, and economic data (including the unemployment rate, wage growth, GDP growth, consumer sentiment, consumer spending, retail sales, productivity, home sales, manufacturing activity, services indicators, and CPI and PPI inflation) to mention just a few key data points.

The aforementioned economic data points along with corporate revenue and earnings results in our view have provided the markets over the course of the last two years since the Fed funds hike cycle began with enough positive offsets to provide an overall resilience to the economy that has thus far given business, the consumer, and labor enough support to navigate a period of multiple levels of uncertainty and thus far resulted in a Fed rate hike cycle without many of the negative outcomes bears, skeptics, and doubters of glass half full thinking have projected.

Quotation from Aenean Pretium

A sense of context is key in establishing how to balance the risks with the opportunities presented to us.

Progress not perfection

With the Fed some eleven rate hikes and five skips (pauses at current levels instead of hikes) into the current rate hike cycle, the pace of inflation has come down to levels that find both the Fed and market participants thinking that the beginning of the end of the Fed’s tightening cycle is upon us.

In our view it is not surprising that traders and other leveraged players have hoped that rate cuts would come sooner (as early as March) and more frequently (expectations of as many as 5-6 rated cuts) than that which the Federal Reserve has conveyed are under consideration for this year (2 to 3 rate cuts).

The variance between market players’ thinking and the Fed’s assessment has generated some bond and stock market volatility over the course of the last few weeks which appears to have ebbed enough for the S&P 500 to cross into the 5,000 plus zone last Friday. While a multiplicity of uncertainties remains to be dealt with by the economy, the markets and their constituencies history reminds us that uncertainty is always with us whether in love, business, politics or health.

A sense of context is key in establishing how to balance the risks with the opportunities presented to us.

In our view the stock market cares most about the ability of companies to generate revenue growth, earnings, cash flow, pace of innovation, and the ability of a tradeable corporate entity to maintain its appeal to investors whether from a proposition as a value or growth enterprise.

For the bond market the quality of the bond issuer and the capability to pay interest over the period from issuance to maturity and the return of principal.

To both markets as to all asset classes the cost of money (credit) is most important as everything is financed. Hence the need for the Federal Reserve to remain vigilant against inflation, deflation, and the pace of disinflation.

The levels of uncertainty that currently exist on the economic landscape as well as to some extent on the geopolitical and domestic political scenes (in a stateside election year) suggest to us the need to stress the importance of diversification across asset classes to achieve a level of comfort from knowing what assets a portfolio holds in consideration of the objectives and tolerance to risk a private investor or an institutional entity have. Right sizing expectations particularly in a highly transitional environment is essential in our view.

We remain positive on stocks, view bonds as complimentary to stocks for prudent diversification and look for a further broadening of the equity rally which emerged from the lows of late October last year.

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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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