Where We Stand
John Stoltzfus, chief investment strategist at Oppenheimer Asset Management, explains his top-down view of markets, the economy and asset allocation.
Economic Growth
The U.S. economy continued to show resilience over the first three quarters of 2023 even as the Fed remained committed to keep monetary policy tight to curb inflation. The outlook for growth continues to show improvement even as inflation remains sticky.
Current View: Neutral
Equities
After a powerful rally in the first half supported by economic resilience equity gains are being tested as investors question how much longer the Fed will have to maintain tight monetary policy to achieve its inflation target.
Current View: Positive
Fixed Income
Although bonds ultimately performed well in the first three quarters of the 2023 as economic activity appeared to be softening, yields swung widely and may continue to do so as the bond market assesses the Fed’s ability to stem inflation while avoiding recession.
Current View: Neutral
Inflation
The effect of ten Fed interest rate hikes since 2022 have blunted the trajectory of inflation. Though the inflation rate has come down it remains above the Fed’s 2% target rate.
Current View: Neutral
Employment
Job postings remain robust as some employers look to maintain head count as labor supply remains tight even as the economy slows.
Current View: Positive
Oil
Production cuts announced earlier by OPEC+ and Russia have raised oil prices on world markets even as the global growth remains uncertain.
Current View: Neutral
Currencies
On a trade-weighted basis the U.S. dollar index regained strength in the third quarter as the Fed appeared likely to continue raising rates and as geopolitical risks prompted renewed interest in U.S. assets as a “safe haven.”
Current View: Neutral
Monetary Policy
With inflation proving sticky, the Fed continues to embrace a restrictive policy stance to further reduce inflationary pressure. Recession risk appears mitigated though not eliminated by resilience in employment and corporate earnings.
Current View: Neutral
Public Policy
As the U.S. moves closer to the 2024 elections brinksmanship between the political parties on economic issues adds a level of volatility to the markets.
Current View: Neutral
International Markets
We expect developed international and emerging equities to continue to lag U.S. markets near term as policymakers address structural issues and as monetary policy makers around the world address inflation risks.
Current View: Neutral
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
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Technology
Rating: Outperform
Rationale: Makers of products vital to business and consumers are poised to navigate higher interest rates. Newer technologies to benefit from M&A activity as established companies seek cost-effective synergies.
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Financials
Rating: Perform
Rationale: Increased regulation and higher interest rates near term could impact revenues and earnings growth.
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Health Care
Rating: Perform
Rationale: Longer-term fundamentals remain solid for pharma with valuations in biotech becoming more attractive for M&A.
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Consumer Discretionary
Rating: Outperform
Rationale: Leisure, hospitality, travel and back to office supportive to the sector. Valuations create prospects for M&A.
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Industrials
Rating: Outperform
Rationale: Aerospace, infrastructure, agriculture, energy and defense equipment needs likely to drive demand for products.
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Consumer Staples
Rating: Perform
Rationale: This defensive sector remains attractive given near-term economic uncertainty. Although valuations remain rich, opportunities may arise on market downdrafts.
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Energy
Rating: Perform
Rationale: Volatility in energy prices is likely to persist in Q4 2023 until greater clarity is reached on global growth.
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Utilities
Rating: Underperform
Rationale: Sector’s role as bond proxy is challenged by bond yields that could go higher and remain high for longer.
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Real Estate
Rating: Perform
Rationale: Location and purpose remain key to commercial real estate. High tax urban areas remain a drag. High rates also weigh on the sector.
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Materials
Rating: Perform
Rationale: Sector is likely to continue to benefit domestic and international infrastructure spending gains traction.
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Communications
Rating: Perform
Rationale: Exposure to tech-driven segments (AI, 5G, media, advertising streaming) provide longer-term opportunity.
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