Resources

Review the latest portfolio strategy commentary from Mike Gibbs, managing director of Equity Portfolio and Technical Strategy.

Short-Term Summary:

The S&P 500 has now pulled back ~9% over the past two weeks, fueled last Friday by the market’s reaction to Fed Chair Powell’s hawkish tone at Jackson Hole. The Chairman’s message echoed recent comments from other FOMC members with an intent to firmly state that inflation is too high, the Fed is determined to bring it under control, and it will likely take a prolonged period of higher rates (and slower economic growth) to achieve this goal. The result is “higher for longer” rate expectations in the aftermath, pushing the 2-year yield to new highs (~3.5%) and the 10-year yield moving higher as well- reinvigorating weakness in equities.

The market’s move since mid-June (a 17% two-month rally, followed by the current 9% pullback) has provided a lot for the bulls and bears. Bears believe the market’s gains were nothing more than a bear market rally, failing at obvious 200-day moving average resistance, and that a much lower low will occur. Conversely, the bulls believe that the lows are in and that the current pullback is normal. Our view is we do not expect a 2001 (dotcom bubble) or 2008 (credit crisis) type market where significant bear market rallies preceded much lower prices. Supply has been hard-pressed to match demand in this cycle, there is a lack of widespread excess, the banks are very well-capitalized, and technology companies are real (far from the speculation of the dotcom era). Additionally, commodity prices have broadly pulled in since mid-June and inflation has likely peaked. Therefore we still favor odds that the lows are in. However, even if not, we doubt that stocks will decline significantly below the lows barring a catalyst that alters the path of inflation and interest rates. We do believe the bear market (at least, in terms of time) will continue. Economic normalization after the pandemic (and the resulting impact on inflation) will take time to play-out. Therefore, volatile/ confusing data remains likely. Plus, the lag effect of tightening on the economy will cause a moderation in earnings for a while. Retests and choppiness are a high probability, such as being experienced now.

In the short-term, equities are broadly oversold enough for a bounce; and we would like to see technical support around 3900 hold. This area represents horizontal support (resistance in June & July, and support in late July), the uptrend line that connects the June low to the July low, and the 61.8% Fibonacci retracement from the June low to August high. Failing to hold this area likely sees a retest closer to the lows (3720-3636). Overall, we continue to view this as a rebuilding phase/bottoming process, but Fed actions and market reactions will be highly dependent on the path of inflation ahead. Today’s ISM Manufacturing showed a continued decline in prices paid, which bodes well for inflation trends. Up next, investors will be watching the August jobs report tomorrow (including wage growth), followed by August ISM Services on Tuesday, and August CPI on 9/13.

View full PDF

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.