Where We Stand
- July 30, 2020
John Stoltzfus, chief investment strategist at Oppenheimer Asset Management, explains his top-down view of markets, the economy and asset allocation.
Economic Growth
We expect a third-quarter economic upturn to gain traction in the fourth quarter fueled by monetary policy, fiscal stimulus and financial aid. Still, growth may falter if there’s a resurgence in the virus that stalls reopenings and dampens confidence.
Current View: Neutral
Equities
Monetary and fiscal policy should support stocks but bouts of volatility are likely as growth and virus containment concerns persist. Valuations have recovered as investors take a longer-term view. Our S&P 500 price target remains suspended until visibility improves.
Current View: Positive
Fixed Income
U.S. bonds should continue to benefit from Fed support. Yields are likely to stay near historical lows, which makes equities and real assets attractive for investors with return objectives.
Current View: Neutral
Inflation
Covid-19 has been broadly disinflationary for the global economy. The challenge for central banks is to offset disinflationary pressures spurred by weaker demand. That weakness is driven by economic displacement and secular trends embedded in globalization and technology.
Current View: Positive
Employment
Social distancing and restrictions on indoor gathering have limited hiring and reopening plans in many sectors and has led to high unemployment that could persist well into 2021.
Current View: Neutral
Oil
OPEC agreement to limit production has led to firmer, more stable prices since mid-April. If the pact holds and demand rises as Covid-19 concerns abate and global growth accelerates, then oil prices could return to pre-outbreak levels.
Current View: Neutral
Currencies
Unprecedented economic stimulus and rescue spending have helped soften the U.S. dollar even as it remains a safe harbor currency amid the Covid-19 crisis.
Current View: Neutral
Monetary Policy
The Fed’s massive support for the U.S. economy remains a boon for financial and real assets.
Current View: Positive
Public Policy
Stimulus and economic rescue spending are likely to increase with a potential for higher infrastructure outlays. Additional income support programs may be necessary as a resurgence in the virus may result in slower economic reopenings.
Current View: Neutral
International Markets
We expect international markets to follow the United States in a global economic recovery in time when the Covid-19 virus’s grasp on the world subsides.
Current View: Positive
Keys to Allocation
1. Core-Satellite Approach
We advocate combining individual securities and actively managed portfolios around a core of other broadly diversified and strategically allocated investments.
2. Broad Market-Cap Exposure
We favor exposure across large-, mid- and small- cap equities when making stock- and sector-specific allocations as global markets remain prone to frequent rotation and rebalancing.
3. Know What You Own
Understanding how different investments interact with each other and how they behave in certain market environments is critical for investors to help achieve their long-term investment goals.
Sector Views
Rating: Outperform
Rationale: Broad-based innovation wave, net cash and low debt. New technologies to boost productivity across sectors.
Rating: Outperform
Rationale: Low deposit rates, high credit-card rates and strong fee policies offset regulatory risk tied to Covid-19 and election rhetoric.
Rating: Perform
Rationale: Covid-19 elevates focus on health care. Longer-term fundamentals remain intact for pharma and biotech.
Rating: Outperform
Rationale: Commerce capability in a social-distancing, shelter-in-place world. The virus poses risks and opportunities with clear winners and losers.
Rating: Outperform
Rationale: Infrastructure programs likely in the offing. Tech innovation offers productivity-enhancing upgrades.
Rating: Perform
Rationale: This defensive sector remains attractive as Covid-19 uncertainty persists.
Rating: Underperform
Rationale: OPEC agreement has led to firmer prices; rising demand as global growth improves may boost prices if bad actors don’t undermine the pact.
Rating: Underperform
Rationale: Attractive yields, regulatory support should prop up utilities even as reduced economic activity dents earnings.
Rating: Underperform
Rationale: Negative impact of Covid-19 on commercial and residential subsectors present near-term and longer-term risks.
Rating: Perform
Rationale: Sector likely to be major beneficiary when Covid-19 risk subsides and global growth reasserts.
Rating: Perform
Rationale: Fierce price competition between dominant players and regulatory risk among social media companies dull attractiveness.
Reach out to your Oppenheimer Financial Professional if you have any questions.
Disclosure
Opinions are subject to change without notice. Information and statistical data were obtained from sources believed to be reliable. Past performance is not a guarantee of future results. OAM Consulting is a division of Oppenheimer Asset Management Inc. (OAM). OAM is an indirect, wholly owned subsidiary of Oppenheimer Holdings Inc., which also indirectly wholly owns Oppenheimer & Co. Inc. (Oppenheimer), a registered broker dealer and investment adviser. Securities are offered through Oppenheimer. For information about the advisory programs available through OAM and Oppenheimer, please contact your Oppenheimer financial advisor for a copy of each firm’s ADV Part 2A. Investing in securities entails risk, including loss of principal. This material is not a recommendation as defined in Regulation Best Interest adopted by the Securities and Exchange Commission. It is provided to you after you have received Form CRS, Regulation Best Interest disclosure and other materials. 2025434.11