Review the latest portfolio strategy commentary from Mike Gibbs.
The S&P 500 has been resilient, hanging in there at the upper end of its recent range (~4200). Investor optimism surrounding an end to the Federal Reserve’s (Fed) rate hike cycle has supported the recent strength, but we are not convinced that a steady climb higher is in the cards yet.
The delayed effects of rapid Fed tightening should bring economic growth and inflation down in the months ahead. In fact, the Fed’s own forecast is for a recession to begin later this year and inflation to reach 2% by year-end 2024. It thus makes sense for the rate hike cycle to either be at or near an end (as the market expects) – and Fed pauses have historically been a boost to equities. However, the Fed will also be reluctant to cut rates with inflation still high, unless economic damage intensifies and employment deteriorates. The Fed wants to avoid easing too early with a potential “stop and go” policy like that which plagued economic conditions in the 1970s – preferring instead a “hike and hold” strategy this time.
If economic conditions hold up, the Fed may be emboldened to tighten policy more than current market expectations – a headwind to equities in our view. For example, Fed speakers have talked tougher recently with banking concerns subsiding and equities climbing. If economic conditions deteriorate, we do believe the Fed will ease monetary policy – but economic volatility is also likely to correspond with market volatility. This results in our rangebound view on equities for now, and narrow participation beneath the surface supports this stance.
Q1 earnings season: The majority of companies have beaten estimates so far by an aggregate 6.9%. It is still early in earnings season, but market reactions have generally been counter to recent trading. For example, Communication Services (outperformed into earnings) have seen a -5.3% price reaction on average, while the Industrials (underperformed into earnings) have seen a +2.9% price reaction on average. For the S&P 500 as a whole, next 12-month earnings estimates have ticked up since earnings season began, but we are not sure this will hold up throughout Q1 earnings season. While we remain below-consensus on earnings estimates, we do believe that a lot of negative news is already priced into this bear market.
In summary: Pay attention to earnings season in the context of a market that is probably at the top of what we think is a trading range. For investors with marginal cash, we would be reluctant to spend it all at current levels. Long term investors – evidence is building (especially in a mild recession) that we have seen the lows and are in the late stages of this bear market.
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.
Estate & Giving Determining how to address substance abuse and addiction among your beneficiaries can be...
Markets & Investing June 05, 2023 Doug Drabik discusses fixed income market conditions and offers...
Markets & Investing June 02, 2023 Review the latest Weekly Headings by CIO Larry Adam. Key...