Market Strategy Radar Screen Weekly September 12, 2016

  "In the jungle, the mighty jungle the lion sleeps…"
but not last Friday

Last week’s market turbulence after eight weeks of near somnolence reminded investors that the market continually hunts for catalysts for its next move and eventually finds them

As a result, stocks stateside closed down Friday with the S&P 500, the S&P 400 (mid-caps), the S&P 600 (small-caps) and the Russell 2000 (smallcaps) respectively lower by 2.45%, 2.92%, 2.97% and 3.11% from the prior day’s close.

The international indices fared better (though Monday’s global trading will likely shed further light on their disposition) with the MSCI EAFE (developed markets ex-US and Canada), MSCI Emerging Markets and MSCI Frontier Markets respectively off 1.48%, 1.93% and 0.63% last Friday.

The dollar moved higher on Friday reflecting the dollar’s status as a “safe haven” currency as gold declined.

Oil counter-intuitively rebounded, bouncing off an earlier sell-off even as the dollar advanced.

Of the 10 GICS sectors in the S&P 500, only one sector shed less than 2% on Friday; that sector was Financials, as sentiment grew positive for prospects of a Fed rate hike and expectations of an environment more conducive to bank profitability.

Friday’s sell-off was the worst since the UK voted in favor of Brexit (leaving the EU). A glance at an intraday chart of the market action on Friday justified the phrase “market plunge” widely bantered about in news stories and in countless conversations post market close and into the weekend.

In the intermediate and long run (and perhaps even in the short run), Friday’s near 2.5% decline on the S&P 500 will become just another blip on the radar screen.

History and personal experience tell us that Fed rate hike cycles can bring volatility which in the moment gathers more attention than it deserves. Indeed, Friday’s sell-off coming on the back of a sleepy August and an eight-week period of relative calm managed to stand out in the market’s short-term attention span and short-term memory.

Over the course of the next few days we’ll likely see the markets digest last week’s occurrences and very possibly rebound sooner than later.

That said, investors should brace themselves for further volatility. Similar to the pilot’s instructions on a commercial flight to “fasten seat belts on expectations of turbulence ahead,” investors should in parallel fashion know what they own, know why they own it and have some idea of how their holdings are likely to respond in different scenarios.

From our perspective a combination of an economy and a market that has shown a predilection for grinding higher and climbing walls of worry will likely continue to be the overriding trend for now.

We reiterate our expectations for the S&P 500 to cross 2300 this year and our favoring of cyclical sectors over defensive sectors among equities. Cyclical dividend-paying stocks appeal to us in an environment where the economy remains resilient but uncertainties remain on the landscape. In such an environment it’s nice to “get paid while you wait.” We continue market cap-agnostic and prefer to hold small-, mid- and large-cap stocks, particularly stateside.

The appeal of the international markets (particularly developed and emerging markets) continues even as near-term concerns about Brexit, the strength of the dollar and global growth remain on the table. Central bank policy makers and government officials, whether at central bank and country-specific events or the recent meeting of the G-20, appear well versed in what the problems are and are active if not so efficient in seeking solutions.

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.