Give Peace a Chance
By John Stoltzfus,
Chief Investment Strategist
Anything But Comfortably Numb
Stocks resilient as investors choose the signal over the noise
Stocks stateside advanced on the week ending last Friday, even as headlines grabbed plenty of uneasy attention touting risks of higher interest rates, the potential of higher inflation, a disruption of global trade flows, the escalation of hostilities in the Middle East, the CBO’s (Congressional Budget Office) projection of trillion-dollar deficits in the not too distant future, and the announcement of the Speaker of the House’s retirement plans, which served to underscore other prominent level departures announced earlier this year that could prove vulnerable to the Republican party in a mid-term election year.
All the aforementioned, and the growls of frustrated Wall Street bears notwithstanding, the Dow Jones Industrials, the S&P 500, the S&P 400 (mid-caps) , the Russell 2000 (small caps) and the Nasdaq Composite (over forty-percent weighted in technology-related shares) respectively advanced 1.8%, 2%, 1.6%, 2.4%, and 2.8% for the week ended last Friday.
Outside of the US foreign developed markets also rallied, as MSCI EAFE (developed markets ex-US and Canada) added 1.4% in the same time period. Elsewhere around the globe results were mixed with the MSCI Emerging markets tacking on a gain of 0.7% on the week while the MSCI frontier markets slid 1.0%.
Last week the S&P 500’s energy sector caught a bid from investors and jumped 6% to lead the other ten sectors of the benchmark.
While a combination of a cheaper dollar, a global economic recovery, geopolitical risk and production discipline practiced by producers stateside and abroad (led by OPEC) has boosted the price of oil (we reference West Texas Intermediate) some 26.9% over the course of the past 12 months and 10.6% in the year to date, the S&P 500 energy sector has risen just 3.4% in the past 12 months and slipped 1.1% on a year to date basis. Last week’s jump will likely be tested should tensions in the Middle East ease over the course of the next few days and weeks.
“We’d expect a lessening of geopolitical tensions and trade war worries might result in a boost to investor sentiment, particularly if more companies follow suit with upside surprises.”
Social Media Stocks Find a Bid
Technology stocks got a boost last week as investors’ earlier fears about social media’s future were eased some as Facebook’s chairman and founder appeared on Capitol Hill and testified before Congress. The importance of in person meetings and dialogue between human beings seemed to remind most involved that social media is not the first innovation to change the way individuals and corporations interact nor the first new invention whose universal use might “need a touch of regulation” to protect the user whether it be the general public, business or government.
We could imagine Alexander Graham Bell, Thomas Edison, Henry Ford, and John D. Rockefeller among a host of other innovative and societally disruptive luminaries of years gone by shaking their heads, chuckling and likely thinking, “the more things change, the more they stay the same.”
Earnings Season Gets Underway
Last Friday several of the major banks reported earnings results that exceeded the Street’s expectations by large measure but investors focused on the US response to Syria didn’t show much enthusiasm to bid stocks higher. We’d expect a lessening of geopolitical tensions and trade war worries might result in a boost to investor sentiment, particularly if more companies follow suit with upside surprises.
Over the course of the next three weeks three quarters of the companies in the S&P 500 will be reporting first-quarter results. This week will feature another brace of major banks, regional banks, health care and technology-related stocks.
The week will also bring a full calendar of economic data including that related to housing; regional manufacturing, industrial production and the Fed’s Beige Book which provides an anecdotal view of the shape of the economies that the Fed’s 12 regional banks oversee.
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.