Be Careful What You Wish For
By John Stoltzfus,
Chief Investment Strategist
Everything and the Kitchen Sink
Notwithstanding storms of epic proportions, the equity market pullback was relatively limited
Despite two major hurricanes of record-breaking status (in terms of damage, destruction, and disruption), along with the worst earthquake Mexico has experienced in 100 years, as well as increasing geopolitical risk on the back of threats of a nuclear attack coming from North Korea, the markets stateside and abroad appear to have digested the news with considerable aplomb—producing little more than a blip on the market radar screen.
Is it animal spirits, irrational exuberance, or abject complacency that has led investors of varied types—from bulls to skeptics—to not blink or turn tail and run, but rather to face the music and consider the risks and opportunities at hand when faced with adversity?
To us it appears that investors are increasingly taking notice of the fundamental improvements in the US economy as well as the ongoing economic recoveries taking place in developed and emerging markets around the world.
Whether it’s improvement in manufacturing, job creation, sentiment, or innovation across the sectors leading to greater efficiencies, market participants this year appear to be “keeping the faith” and looking to even better growth ahead but not at an exaggerated pace or at a gait requiring “great expectations”.
It’s what we refer to as the Bernanke legacy “Einstein market” where everything is considered as relative to an array of factors that lie on the economic landscape.
We believe we are at a point in time where degrees of recovery, growth and overall progress in the economy are seen relative to where we were and where we’ve come from since The Crisis in 2008 and the rally point in March of 2009.
Expectations that the economy today eight years into the recovery from the worst recession since the 1930s would be further along than it is may be unrealistic based on the depth of The Crisis as well as the challenges that have resulted from advances in globalization and technological progress.
“The storms in Texas and Florida devastating as they are today are likely to provide at the local, regional, and national level a positive bump for the economy in the months ahead.”
Lowered barriers of entry to competition on a global basis have created an abundance of goods and services worldwide. In addition, outsourcing and “reshoring” have broadened the accessibility of a global workforce, which has kept wage growth in check. As a result, global growth and prosperity are challenged by deflationary trends that even the unprecedented and extensive efforts of central banks have yet to overcome.
To us the challenge seems not as much a conundrum than simply a long and drawn out process of recovery for economies and markets. This, coupled with the need for businesses, governments, and labor to adapt to outsized technological advancements, has resulted in a path of recovery that has taken more time to travel than most of us would ever have expected nearly a decade ago.
So far patience has often been rewarded for investors who have practiced it. We believe more of that virtue is likely to be required before normalization is a reality.
Monetary policy, wage growth, globalization, and technology, along with the potential for progress at the political level stateside as midterm elections loom, can provide positive offsets to the risks that in the given moment may seem insurmountable.
The storms in Texas and Florida devastating as they are today are likely to provide at the local, regional, and national level a positive bump for the economy in the months ahead. Florida and Texas are states that have long histories of dealing with and recovering from the consequences of adverse weather.
Experience matters in such circumstances and both states have it in abundance, particularly when it comes to rebuilding after a severe storm.
Private sector and government entities are currently leading parallel and concerted efforts in responding to the challenges at hand while already beginning to look ahead at what needs to be done once the waters recede and the dangers pass.
Hurricanes, severe storms, and volatility in weather patterns are a fact of life in many parts of the country. The experiences gained dealing with storms such as Katrina and Sandy are likely to prove useful in responding to the challenges at hand.
Beyond the current emergency, response, and the massive cleanup, economic growth will likely follow.
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.