Review the latest portfolio strategy commentary from Mike Gibbs, managing director of Equity Portfolio and Technical Strategy.
Following the sharp pullback from the 200-DMA over the last few weeks, the market has been able to find some footing around the 3,900 area after getting oversold, which gave a valid excuse for a bounce rally. Overall, we believe the 3900 level is a critical junction for the market. For now, the downtrend remains in place, and while bounce rallies, like the one we are experiencing are possible, we will wait for more clarity on the path of the Fed, inflation, and macro, which we believe could be upcoming catalysts with inflation readings set to be released next week followed by the FOMC’s decision on September 21st. In the near-term, technicals will be useful as they will be impacted by the daily sentiment as the debate between the bulls and bears continues. We will also watch the US Dollar closely. The US Dollar has been strong lately, which has been a headwind for equities, as over the last year the S&P 500 price has seen an inverse correlation of 0.80 to the performance of the US Dollar. In the event that the dollar could see the pace of acceleration moderate, this could be another positive for equities.
If the 3900 level is held, we believe this raises the odds that the lows are in despite our belief that the macro and earnings can continue to move lower. There have been several accumulation readings along with the retracement of 50% following a 20% decline, which have historically coincided with lows being established.
From a fundamental standpoint, earnings season is not expected to kick off for another month. 3Q 2022 earnings growth is expected to be the slowest YoY growth in 2022 at 4.3%. While the challenging economic environment and lower earnings expectations present headwinds to the market, we do believe that equities will bottom (or may have already bottomed) before the economy and fundamentals finish declining as stocks discount the future. Historically, the market bottoms 2-6 months prior to the end of the recession while earnings continue to move lower and do not bottom until ~9 months after the end of the recession.
However, if the 3900 level fails to hold, technically the market could move towards the mid-3700’s and possibly see a formidable test of the June lows. The overall downtrend remains in place with lower highs, failure to break above the 200-DMA, and price below both the 50-DMA and 200-DMA. If this does happen, we do not expect a 2001 (dotcom bubble) or 2008 (credit crisis) type market where significant bear market rallies preceded much lower prices and volatile/confusing data remains likely. For now, with the litany of potential issues on the horizon and September historically being one of the weakest months for equities, we would continue to be patient, but for long-term investors would continue to use pullbacks as buying opportunities.
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.
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.
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.
Family & Lifestyle Strategic borrowing can keep your financial plan intact and at work. Truths that seem...
Economy & Policy December 01, 2023 Chief Economist Eugenio J. Alemán discusses current economic...