08/12/2024 Market Strategy
Easier Said than Done
Moving to an End of a Period of Tight Monetary Policy Isn’t Always a Smooth Journey
Key Takeaways
- We’ve updated our maximum annual drawdowns page to show the 2024 sell off, which sent the S&P 500 down 8.49% from July 16 to Aug. 5. The downdraft is smaller than the maximum annual declines of 2022 and 2023 (of 25.43% and 10.28% respectively).
- With 455 or 91% of the firms in the S&P 500 index having reported, earnings are up 9.3% from Q2:2023 on revenue growth of 5%.
- Eight of the 11 sectors show positive earnings growth with five at double-digit rates. Three sectors show earnings declining from a year earlier.
- This week brings the first indications of July inflationary pressures in the PPI and CPI reports as well as the first reading on July consumer demand with the retail sales report. Earnings season is winding down with just nine firms in the S&P 500 due to report this week.
The recent volatility seen in the equity markets reminds us that emotion, sentiment, and day to day shifts in views have as much if not more of a key role in the direction the prices of asset classes take than does the math that market participants labor over.
At times the differences in opinions between bulls and bears seems to us as wide as those of the political views that exist in the political realm stateside and elsewhere around the world with similar degrees of passions.
This week brings economic data tied to inflation, employment, unemployment, wages, housing and business conditions reported for several of the Fed’s regional banks, along with a few more Q2 earnings results. All this information in aggregate should provide increased clarity as to the when and by how much the Fed might to cut rates.
The futures market has priced in a high level of probability for a 25 basis point cut in the benchmark rate at its September 18 meeting. This has been accompanied by an improvement in market sentiment towards equities, helping the S&P 500 regain some of the ground it gave back from its most recent all-time high on July 16. As of Friday, Aug. 9, the S&P was off 5.7% from the mid-July high.
Bonds have seen yields rise and prices fall as the market appears to recognize that a dramatic cut of 50 basis points is unlikely and perhaps not needed as recently thought given the uptick in last week’s ISM services indexes.
Earnings Growth Has Been Supportive for Stocks
The prior two earnings season results (Q4:23 and Q1:24), like the current one, surprised to the upside with positive earnings growth countering bearish predictions of an earnings recession. Current results in the Q2 S&P 500 earnings season have added additional positive offset to the bearish viewpoint with earnings up some 9.3% with some 91% of companies having thus far reported.
As the second quarter earnings season winds down we look for the market to grow increasingly focused on economic data, comments from officials at the Fed, geopolitical tensions and domestic policy talk, which is to be expected as the calendar moves closer to the US Presidential election.
We remain positive on equities with expectations for a continued broadening of the rally that emerged from the lows last October.
We persist overweight US equities while maintaining some meaningful exposure to international developed and emerging markets as the US central bank moves towards easier policy on greater confidence that its efforts to put untoward levels of inflation in check have been or are near being met. Volatility is to be expected as the economy and the markets navigate economic and monetary policy transition and move towards greater normalization.
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.