Can’t Judge a Book by its Cover
By John Stoltzfus,
Chief Investment Strategist
The First Days Are the Hardest Ones
We quote the Grateful Dead as the 100-day mark approaches for the Trump administration
In a holiday-abridged week, stocks moved lower stateside through last Thursday as the S&P 500, the Dow Industrials and the NASDAQ Composite respectively shed 1.13%, 0.9% and 1.2%. The S&P 400 (mid-caps) and the Russell 2000 (small caps) fared slightly worse—off 1.5% and 1.42%, respectively, through last Thursday.
Internationally, equity markets fared better as MSCI EAFE (developed markets ex-US and Canada) and MSCI Emerging Markets traded near flat with only a slightly negative bias, off 0.14% and 0.12%, respectively. MSCI Frontier markets, on the other hand, shed 0.7% on the week.
Bonds stateside rallied further as yields on the two-, ten- and thirty-year Treasuries moved lower as bond prices rose with their respective yields falling to 2.23%, 1.21% and 2.9%.
A mix of heightened geopolitical risk tied to North Korea, Syria and Afghanistan, mixed with related meetings among officials of the US, China and Russia, increased concern among investors as they prepared to take holiday on the weekend. As a result, risk assets were pared and safe-haven assets were added to by some investors.
A spate of modestly weaker economic data that crossed the transom last week caused some stateside commentators to ponder if the economy were slowing enough to cut into the current rate of expansion and cause the Fed to ease up on its process of interest rate normalization. Concerns about the possibility of the Fed reducing its holdings of fixed income securities held on its balance sheet at some point in the not too distant future added to an air of uncertainty in the markets last week.
Better than expected results from a number of financial institutions (including JP Morgan and Citigroup) when they reported Q1 earnings last week did little to stave off the appeal of “risk off” behavior among investors. The S&P 500 Financials sector slipped 2.65% on the week.
As investors return today from the three-day weekend, their view will likely remain focused on quarterly earnings, stateside and international economic news with an eye toward political developments stateside as well as in the geopolitical realm.
The release on Wednesday of the Fed’s Beige Book detailing economic conditions in the 12 Regions around the country could provide some relief to concerns held by some investors about prospects for economic growth ahead.
From our perspective on the Radar Screen, markets may move sideways near term as issues tied to funding government operations beyond the end of April raise concerns. In addition, the process of addressing agenda items belonging to both sides of the aisle may continue to act as speed bumps ahead of some type of resolution to the current level of gridlock.
With earnings season to begin gathering pace via the number of companies reporting this week, positive earnings surprises could push last week’s worries aside on a day-to-day basis.
We remain constructive on the improving economic landscape stateside and abroad. We believe that the economic expansion stateside as well a global economic recovery in Europe and Asia will continue to provide support for equity markets and provide a platform for further upside ahead.
In reading much of the somewhat negative political, economic and market commentary that has crossed the transom of late, we are reminded of the great American author Mark Twain who is said to have once remarked, “…..reports of my death have been greatly exaggerated”.
We would add that our current market mantra is “a detour is not the end of a journey.” It has served us well during past pauses of the current bull market as it has climbed a wall of worry.
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
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.