![Oppenheimer logo banner header](/_assets/images/images/oppenheimer-banner.jpg)
02/05/2024 Market Strategy
The Message Remains the Same
We were reminded last week of Led Zeppelin’s “The Song Remains the Same”
Key Takeaways
- With 230 or 46% of the firms in the S&P 500 index having reported, results have been mixed but generally stronger than expected. At this near-midway point, earnings are up 4% from a year earlier on 3.4% revenue growth. Prior to the season’s start, a bottoms-up analysis put expected growth at 1.3% YoY.
- A relatively light calendar of economic data and earnings results this week will likely focus investors on earnings reports, company guidance, and comments from Fed officials in events around the country this week.
- Last week’s economic data showed a sharp uptick in consumer confidence and continued resilience in the labor market.
- The S&P 500 is up 4% in 2024 through Groundhog Day, with seven sectors posting positive returns. In our view this shows a broadening in the rally that Oct. 27 of last year.
![abstract financials](/_assets/images/images/news-and-media/2024/february/articleimage_0205.jpg)
No matter how many times Fed Chair Powell repeats the central bank’s rationale for why interest rate cuts this year are not likely to come as often (or as soon) as some market participants expect (as indicated in the Fed Funds futures pricing), resistance to the message persists.
That said, it’s not uncommon for the Fed’s policy in rate hike cycles when they are raising rates to curb inflation or in times when the Fed is adding liquidity to the system to boost a flagging economy (or an economy in recession) that its detractors will say “the Fed will fail,” or “the Fed is bound to break something” or “the Fed is pushing on a string.”
Ironically history indicates in our experience that the Federal Reserve’s policy over the course of the last forty-some years has actually been proven effective at stimulating the economy when it’s been at risk of slowing and remedying periods of higher than acceptable inflation when inflation has threatened the stability of the economy. It has also provided liquidity in major crisis --- the most recent being the pandemic and just before that the Great Financial Crisis of 2007-2009.
The US economy persists to be the largest in the world, the dollar remains the reserve of currency of the globe, and the US economy continues to attract folks from countries all around the world to emigrate here, study here, and invest here --- whether in direct investments or via financial markets.
This is not intended as a jingoistic message but rather a strategist’s observation that the Federal Reserve under five chairs with distinctly different personalities and styles (Paul Volcker, Allen Greenspan, Ben Bernanke, Janet Yellen and now Jerome Powell) has managed via its mandate of shepherding economic stability and what’s known as “full employment” (unemployment somewhere in a range of 3-4% to account for job changes, quits, etc. that are normal) to do its job remarkably well considering the challenges it has had to meet.
The current rate hike cycle that began in March, 2022 has seen the Fed raise rates a total of eleven times and paused or left rates unchanged five times. It has taken its bench mark rate from a band of 0% -0.25% to the current level of 5.25% -5.50%.
So far the Fed this cycle has achieved to slow the pace of inflation and move effectively towards its 2% target inflation rate without pushing the economy into a recession.
Time will tell how the current cycle will conclude. For now the Fed has produced a policy regime that continues to allow business, the consumer, and labor (think jobs growth) to remain remarkably resilient.
Resilience remains the operative word in our view and something economic data and corporate earnings results have managed to show so far.
Our expectations remain for the Fed to remain watchful for data that could justify a rate cut when it can feel the time is right. We expect it will most likely do such in the second half of the year (and perhaps as late as the fourth quarter) and at that with just two cuts.
We remain positive on equities and continue to find fixed income as a complimentary asset class for diversification purposes
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.