Review the latest portfolio strategy commentary from Mike Gibbs, managing director of Equity Portfolio & Technical Strategy.
Short-Term Summary
Just about six months to the day since the pre-Covid peak on 2/19, the S&P 500 posted a new all-time high on 8/18. The S&P 500’s 51% recovery in 104 days since 3/23 (following the -34% waterfall selloff) has been remarkable. However, it is important to not lose sight of the long term bull market opportunity that remains in our view. For example, bull markets historically have seen 155% gains over 1233 days. And the last four bull markets following recessions have actually exceeded these numbers- gaining 259% on average over 1814 days. The S&P 500 breakout to new highs is also indicative of above average returns over the next 6-12 months. Since 1978, the S&P 500 has seen an average return of 12% over the next 12 months following new highs (and has been positive 85% of the time). This data contributes to our positive view on equities over the longer term.
That said, in the short term there are some reasons for caution/patience with new purchases in our view. Investor complacency remains very high. And with a strong Q2 earnings season over, the upcoming election will likely gain increasingly more attention as we enter the seasonally softer period of the year (September-October). Credit spreads have also ticked slightly higher, which has corresponded with consolidations during this bear market recovery. Moreover, it is not uncommon for the S&P 500 to experience slight pullbacks following breakouts to new highs (more of a mixed bag in the short term historically). So we would be selective and exercise some patience with new purchases in the short term. However, we would use any weakness in the coming weeks as a buying opportunity for the long term.
At the sector level, performance continues to be bifurcated (with rotations) between the relative winners and losers of the pandemic. The consumer discretionary sector is a good microcosm of this dispersion. For example, the sector experienced a relative strength breakout this week on good earnings reports. But while the sector is 15% higher than the 2/19 peak, performance has been dominated by internet retail, homebuilders, and home improvement areas (fundamentally strong through the pandemic); while areas like hotels and casinos (more hard hit fundamentally) are still 42% lower than 2/19 levels. Consumer discretionary remains one of our favored sectors, due in part to its exposure to areas doing well right now but also those with longer roads to recovery. We would be buyers on a pullback.
IMPORTANT INVESTOR DISCLOSURES
This material is being provided for informational purposes only. Expressions of opinion are provided as of the date above and subject to change. Any information should not be deemed a recommendation to buy, hold or sell any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such information is accurate or complete. This report is not a complete description of the securities, markets, or developments referred to in this material and does not include all available data necessary for making an investment decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct.
Links to third-party websites are being provided for informational purposes only. Raymond James is not affiliated with and does not endorse, authorize, or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any third-party website or the collection or use of information regarding any websites users and/or members.
This report is provided to clients of Raymond James only for your personal, noncommercial use. Except as expressly authorized by Raymond James, you may not copy, reproduce, transmit, sell, display, distribute, publish, broadcast, circulate, modify, disseminate, or commercially exploit the information contained in this report, in printed, electronic, or any other form, in any manner, without the prior express written consent of Raymond James. You also agree not to use the information provided in this report for any unlawful purpose. This report and its contents are the property of Raymond James and are protected by applicable copyright, trade secret, or other intellectual property laws (of the United States and other countries). United States law, 17 U.S.C. Sec. 501 et seq, provides for civil and criminal penalties for copyright infringement. No copyright claimed in incorporated U.S. government works.
Index Definitions
The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market.
The Dow Jones Industrial Average (DJIA) is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange (NYSE) and the NASDAQ.
The NASDAQ Composite is a stock market index of the common stocks and similar securities listed on the NASDAQ stock market.
The MSCI World All Cap Index captures large, mid, small and micro-cap representation across 23 Developed Markets (DM) countries. With 11,732 constituents, the index is comprehensive, covering approximately 99% of the free float-adjusted market capitalization in each country.
MSCI EAFE (Europe, Australasia, and Far East) is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the United States & Canada. The EAFE consists of the country indices of 21 developed nations.
MSCI Emerging Markets Index is designed to measure equity market performance in 23 emerging market countries. The index’s three largest industries are materials, energy, and banks.
Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary. Past performance does not guarantee future results. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions.
International Disclosures
For clients in the United Kingdom:
For clients of Raymond James Financial International Limited (RJFI): This document and any investment to which this document relates is intended for the sole use of the persons to whom it is addressed, being persons who are Eligible Counterparties or Professional Clients as described in the FCA rules or persons described in Articles 19(5) (Investment professionals) or 49(2) (high net worth companies, unincorporated associations, etc.) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended)or any other person to whom this promotion may lawfully be directed. It is not intended to be distributed or passed on, directly or indirectly, to any other class of persons and may not be relied upon by such persons and is, therefore, not intended for private individuals or those who would be classified as Retail Clients.
For clients of Raymond James Investment Services, Ltd.: This document is for the use of professional investment advisers and managers and is not intended for use by clients.
For clients in France:
This document and any investment to which this document relates is intended for the sole use of the persons to whom it is addressed, being persons who are Eligible Counterparties or Professional Clients as described in “Code Monetaire et Financier” and Reglement General de l’Autorite des marches Financiers. It is not intended to be distributed or passed on, directly or indirectly, to any other class of persons and may not be relied upon by such persons and is, therefore, not intended for private individuals or those who would be classified as Retail Clients.
For clients of Raymond James Euro Equities: Raymond James Euro Equities is authorised and regulated by the Autorite de Controle Prudentiel et de Resolution and the Autorite des Marches Financiers.
For institutional clients in the European Economic rea (EE ) outside of the United Kingdom:
This document (and any attachments or exhibits hereto) is intended only for EEA institutional clients or others to whom it may lawfully be submitted.
For Canadian clients:
This document is not prepared subject to Canadian disclosure requirements, unless a Canadian has contributed to the content of the document. In the case where there is Canadian contribution, the document meets all applicable IIROC disclosure requirements.
Broker Dealer Disclosures
Securities are: NOT Deposits • NOT Insured by FDIC or any other government agency • NOT GUARANTEED by the bank • Subject to risk and may lose value
Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. Raymond James Financial Services, Inc., member FINRA/SIPC. Raymond James® is a registered trademark of Raymond James Financial, Inc.
Markets & Investing April 01, 2024 Raymond James CIO Larry Adam reminds investors they need to be well...
Markets & Investing April 01, 2024 Market rally driven by a broadening of the market and optimism that...
Markets & Investing April 01, 2024 Doug Drabik discusses fixed income market conditions and offers...