08/19/2024 Market Strategy
- August 19, 2024
Old Town Road
As of Last Friday, Aug. 16, the S&P 500 Was Just 2% Below its Prior All-Time High.
Key Takeaways
- Fed Chairman Powell’s remarks on Friday will be a key focus for markets this week as expectations are running high for a 50bp rate cut. We argue a 25bp move is more likely.
- With 463 or 93% of the firms in the S&P 500 index having reported, earnings are up 8.5% from Q2:2023 on revenue growth of 4.8%.
- Nine of the 11 sectors show positive earnings growth with four at double-digit rates. Just two sectors show earnings declining from a year earlier.
- This week brings another 15 firms reporting including companies in the technology and consumer discretionary sectors.
The rebound in the S&P 500 after its 8.49% downdraft between July 16 and August 6 reminds us of the lyric by Lil Nas X and Billy Cyrus. “I’m gonna take my horse to the old town road; I’m gonna ride ‘til I can’t no more.” In our view this quick recovery was based on improved fundamentals and the possibility of a Fed rate cut as early as the September FOMC meeting.
Market performance day to day and on the week is likely to be defined by a brace of economic data, earnings of a number of widely followed names in the S&P 500 (in technology and consumer discretionary) as Q2 earnings season winds down, and Fed Chairman Jerome Powell’s remarks on Friday from the Kansas City Fed’s annual economic symposium in Jackson Hole, Wyoming.
With many folks now looking for a cut of as much as 50 bps in September, a degree of hesitancy in the Chair’s remarks could reintroduce some volatility into the market ahead of next weekend.
Market expectations are high for the Fed Chair to utilize his presentation in Jackson Hole on Friday morning to provide a message that says the Fed has the confidence to provide Wall Street and Main Street with the first cut in rates since the Fed rate hike cycle began in March of 2022. With many folks now looking for a cut of as much as 50 bps in September, a degree of hesitancy in the Chair’s remarks could reintroduce some volatility into the market ahead of next weekend.
In our view a 25 basis point cut would be more likely as last week’s initial jobless claims and continuing claims numbers along with the advance retail sales number suggested economic resilience. The data looked to us to exhibit enough momentum in the economy to elicit greater confidence from the Fed in the economy’s vigor to favor a 25bps cut in September while saving a realistic potential for a further cut of 25 bps for either in November or December.
With the Fed’s expanded focus beyond inflation to likely include employment with July’s unemployment rate at 4.3% vs. 4.1% in the month prior, considerations of the other component of its dual mandate (to provide sustainable economic growth without high inflation and support full employment) any intimation by the Fed Chair that no rate cut is forthcoming in September could reintroduce a tantrum reaction particularly from highly leveraged players in the market.
That said, a cut of 50bps in September might also raise concern that the Fed feels it has waited too long to cut rates and now will need to “catch up” in cutting rates to avoid tilting the economy into recession.
In our view a high level of sensitivity in practicing its mandate throughout the current Fed funds hike cycle will likely carry the Fed’s message in Jackson Hole this week and at its FOMC meeting in September, making the Fed Chair’s commentary digestible to markets even if it’s not exactly what they’d like to hear
Q2 Earnings Season Winding Down
With 463 or 93% of the firms in the S&P 500 index having reported as of last Friday, results overall have surprised to the upside with earnings up 8.5% from Q2:2023 on back of revenue growth of 4.8%. Nine of the 11 sectors are showing positive earnings growth, with four at double-digit rates. Just two sectors show earnings declining from a year earlier.
Sectors seeing double-digit earnings growth include health care (+17%), consumer discretionary (+16%), utilities (+15%), and financials (+13%).
The materials (-7%) and industrials (-3%) sectors were the sectors seeing earnings declines.
Economic data released last week saw further evidence of the Federal Reserve’s progress in curbing inflation growth even as its 2% inflation rate target remains somewhat elusive.
Retail sales showed resilience even as the economy showed slowing–quite normal we’d say now 29 months (and 20 FOMC policy meetings) into a Fed tightening cycle.
We remain 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 growing closer to being met. Volatility should be expected as the economy and the markets navigate the transitions taking place in the economy and monetary policy in a move towards greater normalization.
John Stoltzfus
Title:Chief Investment Strategist, Oppenheimer Asset Management Inc.
John is one of the most popular faces around Oppenheimer: our clients have come to rely on his market recaps for timely analysis and a confident viewpoint on the road forward. He frequently lends his expertise to CNBC, Bloomberg, Fox Business, and other notable networks.
DISCLOSURES
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.