MARKETS AND INVESTING
February 04, 2022
Review the latest portfolio strategy commentary from Mike Gibbs, managing director of Equity Portfolio and Technical Strategy.
After reaching oversold conditions, in which fear indicators spiked and prices plunged too far too fast, the rebound in equities from the lows on January 24th has been constructive as the S&P 500 surpassed two significant breakdown points: the 200-DMA and the horizontal break at ~4500, and daily MACD turned higher and crossed, which often signals a positive momentum shift, fueled by earnings strength from key market-leading stocks. However, if the market fails to hold support and quickly undercuts the ~4500 level, a retest of the lows will be likely. Odds remain elevated, for now, that the low is in, but we believe returning to a new high in short order is unlikely unless the narrative shifts dramatically. Likewise, we don’t feel a meaningful move below the recent intra-day low (4222) is justified either, and we would expect back-and-forth trading as the market attempts to form a base for renewed upside, while investors gain information on the potential path of inflation and Fed policy.
The highlight over the past week has been strong fundamental trends overall for Tech. Throughout 4Q’21 earnings season, the Tech sector has posted the largest EPS surprise at 8.8% vs. the S&P 500 at 4.7%. Overall, earnings remain strong, with close to 60% of the S&P 500’s market cap having reported Q4 results up to this point. 78% of the companies are beating estimates by 4.7%- a moderation toward historical averages of 70% and 5.3% respectively. Margins continue to garner much of the focus given rising inflation. In general, operating margin estimates have come in slightly low for Q4 and into Q1, resulting in full-year 2022 operating margins estimates to tick slightly lower, however, operating margins are still expected to improve from just shy of 17% to over 17.5% in 2022.
In the coming days/weeks, we will be watching the 50-DMA (4626) as resistance along with the ~4500 level and 200-DMA 4,442 for support. Investors will continue to digest earnings with several key market leaders reporting in the coming days. Tomorrow’s U.S. Jobs report will be a good barometer of the labor market, following the ADP employment survey that suggests some downside risk. However, perception around the path of the Fed policy and inflation are likely to remain the biggest driver of returns in the weeks/months ahead. Given our belief that equities tend to overreact (up or down) to headlines and perception, we would use periods of extreme sentiment moves to be opportunistic. As sentiment turns negative and the market moves into oversold territory, we would use as an opportunity to be selective. While there remains work to do and back-and-forth trading is likely to transpire, we continue to believe the path forward is for equities to finish the year higher as the positives outweigh the negatives.
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.