11/13/2023 Market Strategy
Who Do You Love?
US investors favored large cap technology stocks last week
Key Takeaways
- With 92% (458) of the firms in the S&P 500 index having reported third-quarter earnings, results have been generally stronger than expected with earnings growth of 2.8% from a year earlier on revenue gains of 1.6%. Eight of the 11 sectors have registered positive earnings growth with three of those sectors posting double-digit earnings growth.
- Bond prices took a breather last week as prices sagged. The yield on the 10-year Treasury rose 8 basis points to close at 4.65% on Friday with its yield some 20% higher from where it was at the start of this year.
- A second consecutive week of gains for the S&P 500 left the benchmark by Friday’s close just 3.9% off from where it stood at its high for this year on July 31.
- A raft of US economic data including key inflation numbers to be reported this week will help shape the direction stocks take as the week unfolds.
Stocks moved higher in a rally which continued to favor large cap technology and some cyclical sectors last week as bonds got jostled on concerns about Fed policy, and a 30-year Treasury auction that showed some weakness in demand that ticked Treasury yields higher. The price of oil (West Texas Intermediate) closed lower on Friday at $77.17 some 20% off its high of $93.68 for this year reached on September 27th as apparently plentiful supplies and global economic growth concerns offset earlier OPEC production cuts and currently elevated geopolitical risk in the Middle East.
All in all in our view not so atypical a week for an economy and markets navigating the process of a Fed funds hike cycle that’s in a process since last year that’s brought about what we’ve called “the end of free money” and reintroduced an age old paradigm wherein bond issuers pay for the privilege of borrowing money and bond buyers get something in return for lending their money to a corporation, a municipality, the Federal government or some other entity. Not too shabby if somewhat unsettling when it comes to digesting the higher cost of money across economies around the world that had lived on a “sugar high” of cheap funding of the good, the bad, and the ugly or just about anything that’s floated by finance.
Reality may indeed bite but sometimes it’s better than the delusion that cheap money can create across an economic landscape and asset classes.
A powerful rally that has followed a three-month market correction in stocks that took the S&P 500 from a peak level for the year of 4588.96 on July 31 to a fourth-quarter low of 4117.37 on October 31st has seen the venerable benchmark regain much of the ground it had lost from peak to trough in the mid-summer to late-fall drawdown. As of last Friday the S&P 500 stood at 4415.24 just 3.9% shy of the level it had closed at on the last day of July.
Where to from here?
In the week ahead there’s enough economic data scheduled for release across gauges of inflation, unemployment, retail sales, manufacturing and housing to provide clues that will likely influence stock and bond market direction.
With the S&P 500 earnings season fast drawing to a close the few companies that are left to report will have some influence on the day to day action in stocks as some of the biggest names in retail report results. Guidance from managements will likely carry the most weight this week as market participants look ahead to the holiday shopping season as well as to fourth quarter earnings season which won’t get underway until after New Year’s.
With the Fed considered by many to be likely to remain on “pause” or “skip” mode for longer but not likely to cut rates anytime soon we’d expect the markets will remain vulnerable to outbreaks of volatility on any catalyst than could justify “selling without FOMO” by bears, skeptics and nervous investors.
That said, we remain positive on equities. In our view stocks have a good chance to move higher if not always in a straight line from here as the Federal Reserve continues to hone in on its inflation target rate while likely remaining sensitive to the effects of its mandates for economic stability and full employment on the US economy as it has been in our view for much of this rate hike cycle.
Diversification, right sized expectations and patience remain optimal disciplines in our view at this time for intermediate- and longer-term investors. Seeking “babies that get thrown out with the bathwater” in market downdrafts remains our preferred choice of action rather than blindly “buying the dips”. In our view a focus on quality remains an important consideration always but especially in markets navigating a course toward the next new normal.
Strategist Certification - The author certifies that this investment strategy report accurately states his/her personal views about the subject securities, which are reflected in the substance of this investment report. The author certifies that no part of his/her compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this investment strategy report.
The strategy provided in this report is provided by Oppenheimer Asset Management Inc., (“OAM”) a registered investment adviser affiliate of Oppenheimer & Co. Inc. (“OPCO”). It reflects analysis of fundamental, macroeconomic and quantitative data to provide investment analysis with respect to U.S. securities markets. The overview in this report is provided for informational purposes and does not constitute an offer to sell, a solicitation to buy, or a recommendation for any security or investment advisory services. The report is not intended to provide personal investment advice. The investments discussed in this report may not be suitable for all investors. Investors should use the analysis provided by this report as one input into formulating an investment opinion and should consult with their Financial Advisor. Additional inputs should include, but are not limited to, the review of other strategy reports generated by OAM, its affiliates, and looking at alternate analyses. Securities and other financial instruments that may be discussed in this report or recommended or sold by OPCO or OAM are not insured by the Federal Deposit Insurance Corporation and are not deposits or obligations of any insured depository institution. Investments involve numerous risks including market risk, counterparty default risk and liquidity risk. Securities and other financial investments at times may be difficult to value or sell. The value of financial instruments may fluctuate, and investors may lose their entire principal investment.
Strategist Certification - The author certifies that this strategy report accurately states his/her personal views about the subject matter reflected in the substance of this report. The author certifies that no part of his/her compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this strategy report.
Potential Conflicts of Interest: Strategic analysts employed by OAM are compensated from revenues generated by the firm. The strategists authoring this piece also contribute to an OAM managed portfolio product that relies on and trades on the information contained herein. The managed portfolio strategy trades frequently, both ahead of and after the publication of this report. OAM generally prohibits any analyst and any member of his or her household from executing trades in the securities of a company that such analyst covers. Additionally, OAM generally prohibits any analyst from serving as an officer, director or advisory board member of a company that such analyst covers. In addition to 1% (or more) ownership positions in covered companies that are required to be specifically disclosed in this report, OPCO may have a long positon of less than 1% or a short position or deals as principal in the securities discussed herein, related securities or in options, futures or other derivative instruments based thereon and makes a market in the securities discussed herein. Recipients of this report are advised that any or all of the foregoing arrangements, as well as more specific disclosures set forth below, may at times give rise to potential conflicts of interest.
Third Party Research Disclosure OAM has a research sharing agreement with OPCO pursuant to which OPCO provides OAM Strategy thought pieces to its institutional and retail customers. OPCO does not guarantee that the information in OAM Strategy reports is accurate, complete or timely, nor does OPCO make any warranties with regard to the strategy product or the results obtained from its use. OPCO has no control over or input with respect to opinions found in OAM strategy pieces. OAM is a registered investment adviser affiliate of OPCO.
This report is issued and approved by Oppenheimer & Co. Inc., a member of all Principal Exchanges, and SIPC. This report is distributed by Oppenheimer & Co. Inc., for informational purposes only, to its institutional and retail investor clients. This report does not constitute an offer or solicitation to buy or sell any securities discussed herein in any jurisdiction where such offer or solicitation would be prohibited. The securities mentioned in this report may not be suitable for all types of investors. This report does not take into account the investment objectives, financial situation or specific needs of any particular client of Oppenheimer & Co. Inc. Recipients should consider this report as only a single factor in making an investment decision and should not rely solely on investment recommendations contained herein, if any, as a substitution for the exercise of independent judgment of the merits and risks of investments. The strategist writing this report is not a person or company with actual, implied or apparent authority to act on behalf of any issuer mentioned in the report. Before making an investment decision with respect to any security discussed in this report, the recipient should consider whether such investment is appropriate given the recipient's particular investment needs, objectives and financial circumstances. We recommend that investors independently evaluate particular investments and strategies, and encourage investors to seek the advice of a financial advisor. Oppenheimer & Co. Inc. will not treat non-client recipients as its clients solely by virtue of their receiving this report. Past performance is not a guarantee of future results, and no representation or warranty, express or implied, is made regarding future performance of any security mentioned in this report. The price of the securities mentioned in this report and the income they produce may fluctuate and/or be adversely affected by exchange rates, and investors may realize losses on investments in such securities, including the loss of investment principal.
Oppenheimer & Co. Inc. accepts no liability for any loss arising from the use of information contained in this report. All information, opinions and statistical data contained in this report were obtained or derived from public sources believed to be reliable, but Oppenheimer & Co. Inc. does not represent that any such information, opinion or statistical data is accurate or complete and they should not be relied upon as such. All estimates and opinions expressed herein constitute judgments as of the date of this report and are subject to change without notice. Nothing in this report constitutes legal, accounting or tax advice. Since the levels and bases of taxation can change, any reference in this report to the impact of taxation.
Investment Strategy should not be construed as offering tax advice on the tax consequences of investments. As with any investment having potential tax implications, clients should consult with their own independent tax adviser.
This report may provide addresses of, or contain hyperlinks to, Internet web sites. Oppenheimer & Co. Inc. has not reviewed the linked Internet web site of any third party and takes no responsibility for the contents thereof. Each such address or hyperlink is provided solely for the recipient's convenience and information, and the content of linked third party web sites is not in any way incorporated into this document. Recipients who choose to access such third-party web sites or follow such hyperlinks do so at their own risk. The S&P 500 Index is an unmanaged value-weighted index of 500 common stocks that is generally considered representative of the U.S. stock market. The S&P 500 index figures do not reflect any fees, expenses or taxes. This research is distributed in the UK and elsewhere throughout Europe, as third party research by Oppenheimer Europe Ltd, which is authorized and regulated by the Financial Conduct Authority (FCA). This research is for information purposes only and is not to be construed as a solicitation or an offer to purchase or sell investments or related financial instruments. This report is for distribution only to persons who are eligible counterparties or professional clients and is exempt from the general restrictions in section 21 of the Financial Services and Markets Act 2000 on the communication of invitations or inducements to engage in investment activity on the grounds that it is being distributed in the UK only to persons of a kind described in Article 19(5) (Investment Professionals) and 49(2) High Net Worth companies, unincorporated associations etc.) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended). It is not intended to be distributed or passed on, directly or indirectly, to any other class of persons. In particular, this material is not for distribution to, and should not be relied upon by, retail clients, as defined under the rules of the FCA. Neither the FCA’s protection rules nor compensation scheme may be applied. This report or any portion hereof may not be reprinted, sold, or redistributed without the written consent of Oppenheimer & Co. Inc. Copyright © Oppenheimer & Co. Inc. 2023.