![Oppenheimer logo banner header](/_assets/images/images/oppenheimer-banner.jpg)
07/15/2024 Market Strategy
As the World Turns
Shocking Events Tend Not to Deter Investors, Who We Expect Will Remain Focused on Economic and Earnings Results
Key Takeaways
- We were shocked by the attempt on former President Trump’s life but suspect that markets will digest the news quickly and with little fanfare.
- We continue to expect the Fed to wait until the fourth quarter before cutting rates. The futures market, however, has priced in a 90% probability of a 25-basis point cut in September.
- Earnings season kicked off last week with 26 companies of the S&P 500 reporting. While it’s still too early to make much of the initial results, the four large banks that reported showed little income growth despite double-digit revenue gains.
- This week 45 more firms in the S&P 500 issue results. Economic data on tap includes retail sales, housing starts, building permits, and the Leading Indicator.
![abstract finance](/_assets/images/images/news-and-media/2024/july/articleimage_071524.jpg)
As market strategists, we were asked by several members of the financial press on Sunday what effect the heinous attack on former President Trump on Saturday (which wounded him, killed one supporter, and critically injured two others attending the rally in Butler, Pennsylvania) would have on the markets as they opened this week.
Our extemporaneous response was that we thought regardless of the humanitarian shock the event had on individuals attending the Republican rally, others across the country and around the world in digesting the news it would likely have little effect on markets stateside and around the world.
Why is that? In our view markets today are accustomed to digesting and discounting horrific occurrences driven by terrorist actions, the actions of despots as well as natural disasters in a digitalized world in which both good news and bad news travels instantaneously and are quickly contemplated and then discounted by market participants as to their effect on day to day life, supply and demand, inflation, the economy and on asset prices.
Such a view of the markets is not saying that investors are heartless but rather that they are practical in digesting what occurs in a world that has always been uncertain and is likely to remain at times chaotic.
In our view the markets’ approach in judging events such as assassinations, foiled assassinations, declarations of war, illegal military incursions and terrorist driven events begins with elevated concern and concludes with the premise that bad things happen as well as good things.
That said, market response to events that occur outside of hours when trading is underway in our experience is ultimately tied to what effect an event (good or bad) will likely have on prospects for revenue and earnings growth and subsequently on the valuations ascribed to multiple asset classes by market participants.
As we prepared to go to press this Sunday markets around the globe appeared relatively calm if not sanguine in contrast to how upsetting the news of the attack and the effect of the attack itself emotionally on the citizens of the US regardless of where they sit politically.
Where Are We Now?
Last week saw the current stock market rally broaden further on a belief that a better than expected CPI number (released last Thursday) suggested the Federal Reserve might be able to begin to cut interest rates as soon as September. The probability for a September cut by the Fed measured by futures markets jumped as high as 90% last week from an earlier probability of 70%.
The producer price figures released the next day however, came in higher than expected and seemed to us to suggest that the Fed might well remain on pause until after the election. The hotter than expected producer price report looked to us to provide the Fed an opportunity to keep to its pause mode on rates until November providing less risk of an inflation resurgence as well as less opportunity for Fed critics to question the central bank’s independence should it cut rates before the presidential election.
The Shape of Things to Come
With current levels of resilience exhibited by business, the consumer, and job postings in data released recently as well as the level of stickiness that remains apparent in some economic data, we persist with a view that the Fed will extend its pause mode through September and be more likely to cut rates in November and then again in December as a “down payment” to Main Street and Wall Street on the shape of things to come.
In this week we look for the markets to focus on economic data scheduled for release along with Q2 S&P 500 earnings results and developments at the Republican National Convention, which begins today in Milwaukee, Wisconsin.
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 should be expected and 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 that began last year and become more evident in the second half of this year.
Economic and market transitions require patience and conviction of investors during periods when markets can churn from day to day as short term traders move in and out of positions and asset classes seeking short term gains.
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 elevated geopolitical risk.
In our view last week’s stellar performance by small cap and mid cap stocks could be challenged and come into question should the Fed not cut in September postponing a more sustainable rally in small and mid-cap stocks until later this year post election day.
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. 2024.