11/11/2024 Market Strategy
- November 11, 2024
Going Through Them Changes (Again)
Good Fundamental Factors and Market Performance Move Us to Raise our Price Target (Again)
Key Takeaways
- We are raising our price target for the end of 2024 to $6,200 (from $5,900) while leaving our earnings estimate unchanged.
- With 453 or 90% of the firms in the S&P 500 index having reported earnings thus far, results are showing a robust third quarter. Profits in Q3 overall were up 7.1% from a year earlier on 5% revenue growth.
- Eight of the 11 sectors have positive earnings growth, with five at double-digit rates. Three sectors are showing declining earnings, with one (energy) falling at double-digit rates.
- Last week’s decisive election result removed an uncertainty hanging over markets for some months. US stocks staged a “sigh of relief” rally while gold prices eased from their record highs of October. The Fed’s 25 basis point rate cut on Thursday also boosted investor confidence.
- This week brings reports on consumer and producer prices for October as well as retail sales. Another 11 firms are due to state earnings as the Q3 reporting season winds down.
For the third time this year we are raising our price target for the S&P 500 while leaving our earnings projection unchanged.
Last December 11 we initiated a 2024 year-end price target for the S&P 500 of 5200 with an earnings projection of $240.
At the time we initiated the 5200 target price it was said that our target was the highest price target on the street according to Bloomberg’s survey of Wall Street strategists.
Three months later—by early March of this year the S&P 500 had closed at a level above 5200 exceeding our year-end target price for the S&P 500.
In our view, investors could well benefit from practicing patience and avoiding jumping to conclusions as to how the election outcome will affect the markets.
On March 25 following our self-imposed discipline (which calls for us to wait until the benchmark closes at or above our target price before considering raising our target price on the benchmark) we reviewed economic and market conditions once again and increased our price target to 5,500 as well as raised our earnings projection to $250. Once again our target was said to be the highest on the street.
In July of this year the S&P 500 closed at a level above 5500 exceeding our earlier upward adjusted price target of 5,200. On July 7 we raised our target to 5900 and kept our earnings projection at $250.
Now just four months later we are once again adjusting our 2024 year-end price target moving it from 5,900 to 6,200 or some 3.4% higher from where it closed at 5995 last Friday, November 8. We are maintaining our earnings projection at $250 suggesting a forward P/E multiple of 24.8x. (See page 12 of this report for details on current market valuations).
Economic fundamentals, earnings and revenue growth, the resilience of the consumer, along with Fed Monetary policy collectively also suggest to us that further upside in large cap stocks remains likely through year-end even as the current rally in equities appears likely to further broaden boosting the performance of mid cap and small cap stocks.
Beyond trader induced momentum intermediate and longer-term investor sentiment, significant levels of cash reported to still remain on the sidelines suggests to us that the current bull market has legs to run through the end of the year notwithstanding any catalyst that could bring about some near-term selling and profittaking by bears, skeptics, and nervous investors always ready to find opportunity to sell “without FOMO” midst a bull market that has and continues to show considerable resilience in dealing with uncertainties that might emerge in its path.
Wait and See Before Jumping to Conclusions
With the results of the 2024 election now in large part known (with which party will control the House of Representatives still awaiting final vote counts) the market has rallied notably from election day (Nov. 5) through last Friday (Nov. 8) much in the form of a “sigh of relief” rally as election day outcome uncertainty and nervousness ended with a decisive election result that removed an uncertainty hanging over markets for months.
Over the three days of trading since Election Day, Nov. 5, the S&P 500 stocks rose 3.7% through Friday Nov. 8. Investors have bid up prices of several cyclical sectors including consumer discretionary, financials, industrials and information technology. The four defensive sectors were among the five worst performing of the eleven sectors.
In our view investors could well benefit from practicing patience and avoiding jumping to conclusions as to how the election outcome will affect the markets. We favor broad diversification tuned more to cyclical and secular trends that remain in place for now rather than “betting” on the shape of things to come as a direct result of the elections that just took place.
Ultimately the stock market focuses on the health of the economy, revenue and earnings growth, the potential for innovation to drive earnings and the effect of monetary policy on the economy (particularly on business and the consumer).
With the Fed having begun the process of cutting its benchmark rate equities appear well positioned to benefit as interest rates likely move somewhat if not much lower over the months ahead.
We remain positive on equities and look for opportunities including those that offer the potential for total return (capital appreciation and dividend income). As Q3 S&P 500 earnings season nears a close once again, large cap stocks have shown the ability to exceed consensus expectations with results.
Current yields in fixed income (the bond market) suggest to us an environment where bond issuers now once again are having to pay for the privilege of borrowing money providing bond buyers an opportunity to get something in return in the form of attractive yields compared to the last decade.
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.