Review the latest portfolio strategy commentary from Mike Gibbs, managing director of Equity Portfolio and Technical Strategy.
The market finally took a breather this week after a strong start to the calendar year. While we thought a “rest” was inevitable as the market was in overbought territory, the market had been resilient and the technical momentum was becoming difficult to ignore. However, the technical picture has quickly reversed course with the S&P 500 down nearly 5% off its recent high and over 2% over the last week after a failed break-out amid a rally in break-even inflation expectations, interest rates and the U.S. Dollar.
The index now is sitting right near key support levels (uptrend support at 3995, 50-DMA at 3980, and 200-DMA at 3940) as MACD is moving lower and RSI is suggestive that the market may be near-term oversold levels. We believe the S&P 500’s failed breakout is a reality check and reminder that 1) markets are not ready to see an easy glide path back to new all-time highs and 2) volatility is likely to continue even within the 3700-4300 range over the coming weeks/months.
For now, we continue to see inflation and the path forward from the Federal Reserve (Fed) as the main focus for investors. The eventual terminal rate for federal funds will continue to be hotly debated, but it appears the market is now pricing in more of a hike-and-hold strategy by the Fed versus prior expectations of pivot in the back half of the year, which is likely pressuring equities as interest rates move higher. Wednesday’s Federal Open Market Committee (FOMC) meeting minutes suggest that while the Fed members see more increases as warranted as “inflation is unacceptably high”, the members will continue to debate the pace of rate hikes, as more aggressive actions can allow the Fed to reach its intended targets quicker while a more measured approach will allow the Fed to assess the impact of the rate hikes. However, the market has increased expectations for the terminal rate of hikes since the beginning of February as inflation has proved stickier as seen by market implied break-even inflation expectations.
PCE data, a favored inflation metric for the Fed, is expected to be released on Friday, and we believe this could be a catalyst. A PCE reading showing moderation in inflation could entice buyers, pushing equities above the recent peak. A more neutral report could cause a short-term relief rally as the market seems to be oversold in the near-term with both RSI and the percent of equities above the 10-day confirming the recent selling pressure. However, a PCE reading suggestive that inflation may be stickier, could further pressure equities. A break below the 200-DMA, the technical picture deteriorates, and the S&P 500 could slide to the 3850-3900 area followed by 3800 level. We would use weakness as opportunity to accumulate favored stocks for the longer-term as the percentage of equities trading above the longer-term averages (50-DMA and 200-DMA) remain in uptrends and supportive for equities.
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.
Markets & Investing March 20, 2023 Doug Drabik discusses fixed income market conditions and offers...
Economy & Policy March 20, 2023 CIO Larry Adam outlines the positive events that are outweighing...
Markets & Investing Recent market activity and rising interest rates have investors thinking twice about...