Weekly market guide - Butler Financial, LTD


Weekly market guide

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

The eagerly-anticipated September inflation report was a disappointment. Core CPI rose 0.6% m/m (above the 0.4% consensus estimate), taking the y/y reading up to a new high of 6.6%. Shelter rose another 0.7% m/m and food 0.8% m/m. The bottom line is this report will keep the Fed hawkish. A 75bp hike in November is all but certain, and increases the likelihood of an additional 75bp hike in December.

Inflation remains the primary influence on equity markets. The longer it remains sticky, the more pressure it puts on the U.S. consumer and Fed. We remain encouraged by the soft, survey-based economic data indicating that inflation should moderate over the next year. For example, this week’s NFIB Small Business survey showed a continued decline in both price plans and compensation plans (in the next 3 months). However, investors are still waiting on the leading indicators of inflation to show up in the hard, actual data. It will be difficult for equities to sustain upside without convincing improvement in inflation. We believe that inflation is set to moderate over the next year, but the timing and degree of improvement in the shorter-term are likely to keep equities volatile.

It is important to keep the current market weakness in perspective. Recessionary bear markets decline 33% over 13 months on average – but the S&P 500 is down 25% over 9 months already. Fed tightening will work with a lag on the economy – we expect weaker economic growth and earnings growth ahead. But we do not expect a deep recessionary bear market like 2002 (dotcom bubble) and 2008 (financial crisis). Banks are well-capitalized, Tech fundamentals are real, and supply has been hard-pressed to meet demand this cycle. As such, we do not see widespread excess on corporate and consumer balance sheets. Because of this (accompanied by our expected improvement in inflation), we believe this recessionary bear market to be more of the mild, average variety. The current weak trend could certainly persist for the next several months with additional downside, but the majority of this bear market is likely behind us at this point.

Technically, the S&P 500 is bouncing strongly from support in the low 3500s today (~16x P/E), which will be the initial area to watch in the short-term. Below this, the next area of key support is 3394 which was the pre-Covid highs – interesting to think that the market may completely round-trip performance since Covid (surging higher on enormous stimulus and now declining as the Fed takes it away). In a worst case scenario, we could see the S&P 500 move all the way to 3000-3200 (in line with the average -33% recessionary bear market decline historically and a 14x P/E). But the market is oversold enough to bounce at any point. Another key catalyst at the individual stock level is Q3 earnings season (beginning tomorrow with the banks). We expect dampened guidance, but it will be interesting to see the market reactions (as a gauge on how much negativity is already built in).

View full PDF


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.

Other posts you might like
The next level of play in the financial markets

Markets & Investing April 01, 2024 Raymond James CIO Larry Adam reminds investors they need to be well...

read more
No fooling – a silver lining for investors

Markets & Investing April 01, 2024 Doug Drabik discusses fixed income market conditions and offers...

read more
March highlighted by markets rising to record highs

Markets & Investing April 01, 2024 Market rally driven by a broadening of the market and optimism that...

read more