Review the latest portfolio strategy commentary from Mike Gibbs, managing director of Equity Portfolio and Technical Strategy.
Last week’s market enthusiasm following Federl Reserve (Fed) Chairman Jerome Powell’s speech has quickly turned to focus on the sharply inverted yield curve (which continues to worsen) and hesitancy ahead of the catalyst rich upcoming week which includes important readings on inflation (PPI and CPI) along with the Federal Open Market Committee (FOMC) announcement, in which the market is expecting a 50 basis points (bps) increase, a slowdown from the recent pace of 75 bps per meeting. The sharp inversion of the yield curve is giving investors pause as sharp inversions have historically been a precursor to a future recession.
However, for now, the labor market remains strong with the unemployment rate remaining low at 3.7% and the change in non-farm payrolls of 263K topping consensus estimates of 200K. The strong labor market could continue to give the Fed cover to maintain a more restrictive monetary policy. Additionally, a major area of focus within the upcoming inflation reports will be wage growth, which remains stubbornly high given the tight jobs market, and could pressure the Fed to maintain its current restrictive stance for longer.
From a technical perspective, after improving over 17% from the October lows and despite breaking above the 200-DMA for the first time in 8 months, the S&P 500 has been turned back at the downtrend line for now, which has been in place since the beginning of the year, as short-term indicators got into overbought territory. We would continue to watch 3910 on a closing basis for support followed by 3867 (38.2% Fibonacci retracement level). If this level is unable to hold, the 3800 area (50% Fibonacci level) provides the next level of support. On the upside, a breach of the downtrend, which is currently at 4109 will be key for further upside. We would expect some continued back-and-forth volatility and would be buyers on weakness, but cautious on chasing bear market rallies.
In the past week, sectors such as Industrials and Financials have been under pressure, but we have seen strength within Health Care, which remains one of our favored sectors. Emerging Markets is another area that has seen momentum, but we would be cautious of chasing the improving relative performance with the US Dollar sitting near its 200-DMA. For the S&P 500, we continue to believe over the next year, the Fed is likely to reach the peak of the tightening cycle, which is likely to shift the focus from inflation/pace of rate increases to economic/earnings data, in which we believe there is risk that earnings for the S&P 500 could come down further. Typically, there tends to be a lag between the rate hike cycle and when the higher rates begin to impact the economic environment by 6-9 months with another 12-18 months before it will be fully realized. In this environment, rallies and sell-offs are likely as we get a better picture of the economy, but remain favorable on equities long-term.
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.
Technology & Innovation Intellectual property insurance may help you enforce your rights. While the...
Markets & Investing February 06, 2023 Doug Drabik discusses fixed income market conditions and offers...