Trend Analysis

Market Strategy Radar Screen Weekly March 20, 2017


In this article:

  • Since the markets turned to recovery-mode a little more than eight years ago we have frequently recalled and once again are reminded to repeat investors’ primordial mantra: “Don’t fight the Fed.”

RELATED ARTICLES:

The First Days Are the Hardest Ones

By John Stoltzfus,
Chief Investment Strategist

Here I Am, Stuck in the Middle with You

By John Stoltzfus,
Chief Investment Strategist


Other Articles By John Stoltzfus:

The First Days Are the Hardest Ones

By John Stoltzfus,
Chief Investment Strategist

Here I Am, Stuck in the Middle with You

By John Stoltzfus,
Chief Investment Strategist



 Don’t Fight the Fed

The Fed delivers the goods – as telegraphed


Stocks moved broadly higher across the world last week even as political and geopolitical potholes across policy landscapes stateside and internationally kept investors wary of getting too cocky about the gains posted by stocks so far this year as the calendar pages turn fast near the end of the first quarter of 2017.

 

Last week stocks stateside moved broadly higher with The Dow Jones Industrial average and the S&P 500 edging ever so modestly higher—respectively up 0.06% and 0.24% trailing the gains of the S&P 400 (mid-caps) and the Russell 2000 (small caps) which advanced respectively 1.18% and 1.92%.

 


In the international realm stocks broadly bested US equity gains (in dollar terms) as MSCI EAFE (developed markets ex-US and Canada) rose 1.99% while MSCI Emerging Markets jumped 4.26% and MSCI Frontier markets added 0.92%.

 

It was a mix of good news on the home front and abroad that pushed stocks higher around the world, saw bond yields stateside edge lower on the longer end of the yield curve and the price of oil stabilize some as WTI (West Texas Intermediate) rose 0.6% on the week.

 

From our perspective on the radar screen the catalyst for stateside and international markets’ move higher last week was in large part a relief rally on back of the Federal Reserve’s decision last Wednesday to raise its benchmark rate by 25 bps along with Fed Chair Yellen’s comments post the FOMC announcement that signaled the Fed for now remains committed to rate normalization at a pace which provides ample consideration to the moderate nature of the current US economic expansion. A further catalyst for markets’ gains last week from a global perspective was the increasingly evident process of economic recovery crossing developed and emerging markets.

 

The outcome of the election in the Netherlands which resulted in the incumbent (the moderate, pro EMU choice) winning more votes than the populist candidate gave international stocks a further boost. European bourses reflecting on earlier populist wins in elections in the UK and the US had shown concern leading up to that vote.

 

The overall effect for equity markets was to see investors move out somewhat on the risk curve last week, rotating into mid-caps and small caps with greater verve than they added to large caps.

 

With the markets highly prone to rotation-andrebalancing, the move among stateside equities made sense to us as mid-caps and small cap stocks have trailed the performance of large cap stocks since the start of the year.

 

M&A activity, driven by corporate restructurings and activist trends, along with a domestic economy that continues to provide signs of sustainable growth auger upside risk to the economy should fiscal stimulus via infrastructure and tax reform be enacted at some point this year.

 

It signals to us that the mid and small caps, which are highly sensitive to economic growth (and considered to be not quite as sensitive to dollar fluctuation as large caps), are likely to participate should the direction for stocks point higher near term.

 

Entering this week short-term market players will likely consider what to do with recent gains. Any catalyst worthy of inspiring a downside move however will likely have to contend with economic trends that continue—though certainly not in a straight line—to point toward further improvement.

 

With the Bernanke legacy, Yellen-led Fed remaining highly transparent and communicative and with prospects for corporate earnings to continue to improve, skeptics and bears could experience further consternation.

 

Since the markets turned to recovery-mode a little more than eight years ago we have frequently recalled and once again are reminded to repeat investors’ primordial mantra: “Don’t fight the Fed.”

 

 

 

 

 

 

 

For the complete report, please contact your Oppenheimer Financial Advisor.

 


Other Disclosures

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. 2015.


About John Stolzfus

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 channel and other notable networks.

Full Profile