Weekly Market Guide: April 1st
Markets and Investing
April 01, 2022
Review the latest portfolio strategy commentary from Mike Gibbs, managing director of Equidad Portfolio and Technical Strategy.
The 10% 10-day move in the S&P 500 was impressive (has only occurred a few times over the past decade) and came in the face of negative newsflow. Headlines do suggest some positive developments on the Russia/Ukraine war with potential de-escalation, but the situation remains very fluid. In the event of a ceasefire, we are not convinced the S&P 500 is set to move appreciably higher given our view that investor focus will shift back toward an increasingly hawkish Fed as it attempts to stave off high inflation. The market currently expects 8 more 25bps rate hikes this year (at the remaining 6 meetings), implying a 2.37% Fed funds rate by year-end. With the 2-year Treasury yield used as a gauge of where the market sees the Fed funds rate heading, the 10yr-2yr spread has become very narrow (just 3bps today).
This narrow yield curve is resulting in investor concern, considering its historical precedent of inverting prior to economic contractions and bear markets. To be sure, an inverted yield curve is a negative indicator for credit conditions, leaving the economy and equity market more susceptible to negative macro shocks. But we would refrain from a knee-jerk reaction should the 10y/2y spread invert given the long lead time that can occur before market weakness. For example, bull markets have peaked on average ~12 months following the past six 10y/2y inversions (since 1978). Also, we view the 10-year vs 3-month yield as a better indicator of economic conditions, due to it being preferred by the Fed along with it utilizing one market yield (10-year) and one policy rate (3- month) rather than two market yields (10-year and 2-year). The 10-year vs 3-month is still wide at 181bps; and the ultimate pace of Fed rate hikes over the next 12 months will be highly influenced by the economic environment and inflationary trends. Our base case expectation remains that inflation will moderate over the course of the year, and this may ease pressure on the Fed’s rate hike cycle.
Technically, the market’s advance over the past couple of weeks pushed above multiple resistance levels- breaking the downtrend that has been in place year-to-date. We remain positive on the market backdrop and believe equities will be higher over the next 12-months, but we would not be surprised for further choppiness over the coming months as the market digests the recent volatility while gaining further information/clarity on the obvious headwinds (i.e. Russia/Ukraine war, high inflation, Fed policy). With this in mind, we would use weakness in favored stocks as opportunity.
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 Inversión 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.