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06/03/2024 Market Strategy

  • John Stoltzfus
  • June 3, 2024

Bumpty, Bumpty, Bump

Stocks marched in place last week on the latest round of economic data and corporate earnings

Key Takeaways

  • With 98% (490 firms) of the companies in the S&P 500 index having reported Q1 results, earnings are exceeding expectations. Profits are up 7.8% overall on the back of 4.1% revenue growth. Prior to the start of the season, Bloomberg put bottom-up estimates of Q1 earnings growth at 3.9%.
  • Eight of the 11 sectors are showing positive earnings growth, with six up double-digit rates. These include Communication Services (+41%), Utilities (+31%), Consumer Discretionary (+28%), Information Technology (+24%), Financials (+12%) and Real Estate (+11%).
  • The “multi-trillion dollar question” on policymakers’ minds these days is: “Are we done yet—or at least are we near done—with tightening?”
  • The week ahead brings a heavy slate of economic data and the first measures of economic activity for May. Key are the ISM reports, vehicle sales and the nonfarm payroll survey with its measures of jobs growth, the unemployment rate, and average hourly earnings growth. 
abstract financials

Stock and bond prices got somewhat jostled on mixed earnings results among companies in technology and consumer discretionary and on economic data that raised concerns about growth (both to the upside and downside) that pointed to both economic slowing and yet with enough growth to likely extend the period of uncertainty as to when the Fed might begin to lower its benchmark rate.

In our view investors should consider the power of the rally across the S&P 500’s 11 sectors and the NASDAQ Composite since last year before jumping to conclusions.

Quotation from Aenean Pretium

For now the operative word in our view remains “resilience” with the Fed still on pause and inflation stickier than desired keeping the Fed’s 2% inflation target elusive

Keeping things in context suggests recent periods of volatility are likely less an indicator of a substantial reversal ahead but rather evidence of a normal market “haircut or trim” in which bears, skeptics and nervous investors find a catalyst to take some profits without FOMO (fear of missing out), while others rotate and rebalance portfolios across sectors, style and market capitalizations to reflect the bull run from the start of this year and the direction markets may follow in the months ahead.

For all the attention given to the volatility that wafted through stocks stateside in May the Dow Jones Industrial Average, the S&P 500, the S&P 400 (mid-caps), the S&P 600 (small-caps), the Russell 2000 (small-caps) and the NASDAQ Composite (over 40% in tech or tech related stocks) delivered respective gains on the month of: 2.3%, 4.8%, 4.26%, 4.87%, 4.87% and 6.88%.

As welcome as the degree of success the Fed and other central banks around the world have had in bringing down the levels of inflation since March 2022 (when inflation reached 40 year highs in the US), uncertainty remains as to how much work is left to be done before the current hike cycles can begin to be dismantled and ultimately determine when they will end. This is not atypical of periods in transitioning. In our view periods of such uncertainty can present not just risks but opportunities for both short-term traders as well as for intermediate to long-term investors.

The “multi-trillion dollar question” on policymakers’ minds these days is: “Are we done yet—or at least are we near done—with tightening?” It’s also a question that weighs on the markets and the minds of traders and investors for now with data dependency a hallmark of the current period.

The good news in our view for US investors about the Fed is that it has been remarkably sensitive in applying its mandate to curb inflation this rate hike cycle and so far been able to avoid pushing the economy into a recession. The economy, business, the consumer and job growth persist in showing signs of resilience in data and earnings results released through last week. Though there is evidence of some slowing it should not be surprising considering the Fed’s 11 rate hikes and seven pauses since March of 2022.

Earnings Season Proved Strong

With some 98% of S&P 500 companies having reported Q1 results and earnings season winding down, eight of the 11 sectors have posted positive earnings growth with six of the sectors showing double digit earnings growth: Communications Services (41.43%), Utilities (30.5%), Consumer Discretionary (29.99%), Information Technology (26.43%), Financials (11.35%) and Real Estate (10.52%).

Just three sectors have reported negative earnings growth in the Q1 earnings season: Energy (-25.68%), Health Care (-25.46%) and Materials (21.5%). (See page 8 for our S&P 500 Earnings Score Card).

With the latest data on consumer sentiment from the Conference Board and the Fed’s favorite gauge of inflation (the PCE core deflator--see page 7 for illustrations and comments) in the rearview mirror, this week will find market participants focused on an array of key data including that pertaining to US: manufacturing, construction, job openings, factory orders, mortgage applications, vehicle sales, the ADP employment change, and wages—all of which will lead to the May monthly employment numbers and the unemployment rate on Friday.

For now the operative word in our view remains “resilience” with the Fed still on pause and inflation stickier than desired keeping the Fed’s 2% inflation target elusive.

We remain positive on equities and continue to see fixed income securities as complimentary to stocks in providing portfolio diversification.

Some near-term profit-taking in the day to day action of the market particularly in segments of the market that have had exceptional run-ups since last year into this year continues to appear to us quite normal. Such activity combined with a process of rebalancing and rotation into other segments of the stock market in our view can be healthy and should contribute to the broadening of the markets’ progress from last year through this year.

Near-term volatility could in our view continue to present opportunity for investors to “catch babies that get thrown out with the bath water” in periods of market down drafts as the market digests levels of uncertainty that are not uncommon to times of transition in monetary policy like these and in periods of rising geopolitical risk.

John Stoltzfus headshot

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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